German exports start to stall

The steady and strong German economy is showing signs of slowing down. Exports to the south of Europe have decreased.

The strong cutbacks that German Chancellor Angela Merkel called for have translated into reduced exports to Spain, Italy, Portugal and Greece. In total, these countries typically account for 26.2% of Germany's foreign trade. In order to compensate for flagging demand for their goods in southern Europe, Germany is trying to increase exports and services in the rest of the euro zone, China and the United States. But growth in these regions is less than impressive.

Despite the intrinsic health of the German economy (Fitch rated its long-term debt AA yesterday, which is the highest possible grade), a major portion of its export market is suffering. Merkel should view this as a danger signal. Her treatment of Spain's problems has resulted in bailout conditions, which in theory will be softer than first expected, helping out Spain and also Germany by getting Spain out of a recession and boosting Germany exports.

Iron Merkel shouldn't let Germany's next election, which is around 15 months away, blind her to the immediate future. The work won't be easy, but it can be done, because the Social Democrat Party have mixed themselves up in their proposal to commonize European debt once fiscal union is established. Most Germans reject this option, because they are unwilling to make sacrifices in order to take pressure off Spain and Italy. Merkel should be careful, because if exports continue to fall Germany's disciplinary boomerang might come back and smack them in the face.