News / Economy

Faltering Germany Casts Cloud Over Fragile Eurozone

Traders are seen at their desks in front of the DAX board at the Frankfurt stock exchange, Germany, July 10, 2014.
Traders are seen at their desks in front of the DAX board at the Frankfurt stock exchange, Germany, July 10, 2014.
Reuters

Germany's faltering economy has cast further doubt over the eurozone's prospects for recovery this year, with no other big country strong enough to pick up the slack.

Since late last year, the 18 countries using the euro have been climbing steadily out of a two-year recession. But just as the bloc appeared to be turning the corner, its star economy, Germany, has fumbled the ball.

To make matters worse, other big states, including the eurozone's second-largest economy France, show little prospect of a strong rebound.

French industrial production plunged unexpectedly in May, and inflation fell to its lowest level since the financial crisis in 2009. Adding to the gloom, Italy's factories also saw a 1.2 percent drop in output in May, the steepest fall in more than a year-and-a-half.

And while Spain is expecting growth to accelerate to near 2 percent in 2015, one in four of Spain's workforce are out of work after the collapse of a property price bubble.

“Europe is getting more and more Japanese,” said Carsten Brzeski, an economist with ING, echoing concerns of others that the region faces permanent slow growth and no price inflation.

“The eurozone is flat lining. I don't see substantial growth for another year.”

Choking exports

At the start of 2014, the picture looked different.

Throughout the first three months, the German economy grew at its strongest rate in three years - 0.8 percent - thanks in part to mild weather lifting construction work.

That made up for stagnation or slowdown in France, Italy and the Netherlands and prevented the bloc's overall recovery from stalling.

While Britain, outside the bloc, underlined its robust recovery with the strongest quarterly growth in four years - to end June - the mood is turning in continental Europe's industrial powerhouse. German exports, imports, industrial orders, output and retail sales all fell in May compared with a month earlier.

On Thursday, Germany's economy ministry cautioned about the impact of the crisis in Ukraine on confidence in Germany as it painted a bleak picture of the second quarter.

“After a growth-strong start to the year, the development of the German economy in the second quarter is subdued,” the report said.

Across the whole eurozone, analysts expect growth in the second quarter at around 0.2 percent, quarter on quarter, as seen in the three months to March.

In the boardrooms of Germany's Mittelstand, the small and medium-sized companies that employ about 70 percent of its workforce, the sense of nervousness is palpable.

“The mood has deteriorated after the strong start to the year,” Mario Ohoven, head of the BVMW Mittelstand association, told Reuters. He blamed the 'smoldering' eurozone crisis and Ukraine for crimping companies' export forecasts.

Martin Wansleben, Managing Director of the German Chamber of Industry and Commerce, made a similar assessment.

“The ongoing Ukraine-Russia crisis, the conflicts in the Middle East and the ropy economic activity in emerging markets are clearly choking the export business,” he said.

Both expect an improvement later in the year, as do economists, but few believe Germany's economic muscle can this time pull its neighbors from the trough.

“The numbers are bumpy,” said Jonathan Loynes, Chief European Economist at Capital Economics. “I think the economy is growing, but ... not strongly enough to sustain a strong economic recovery across the eurozone as a whole.”

Stubborn

There is a wider debate across Europe about whether to shift the policy focus towards spending to lift the economy and away from spending cuts and austerity.

Italy's Prime Minister Matteo Renzi is leading a drive for greater flexibility in the way European budget rules are applied, whereas Germany wants to keep the focus on thrift.

But for some, that debate glosses over a deeper problem that holds back the eurozone economy - a reluctance to change.

Germany, they say, is stubbornly wedded to its model of manufacturing, while others, including France, are resisting social and economic reforms needed to boost industry.

“Germany should be the locomotive of Europe,” said Guntram Wolff of Brussels-based think-tank Bruegel.

“But the feeling in Germany is that we want to rely on the strength of the last 10 years in manufacturing, and we don't accept change in the economy. The services sector, for example, is still quite regulated.”

In neighboring France, the government has struggled to reform its social welfare system and labor model.

President Francois Hollande is pinning his recovery hopes on plans for nearly 40 billion euros in corporate tax breaks to be phased in over the coming three years.

But the announcement has done little so far to lift business confidence, which has ebbed ever lower in France. The country's central bank estimates growth of only 0.2 percent in the second quarter after stalling in the first three months.

Weak business confidence in turn weighs on company investment, which the government is counting on to underpin growth even though consumer spending, currently weak amidst high unemployment, is traditionally the main driver.

For captains of industry, such as Christophe de Margerie, the chief executive of French oil major Total, this reluctance to reform is one of the chief problems.

“Why doesn't it [the economy] take off as fast as we would like?” he recently told reporters.

“Probably first of all because we were hit by the crisis later than others so there is a delayed impact, but also because our welfare system ... sometimes hides how tough times are.”

You May Like

Kurdish Party Pushes Political Gamble to Run in Turkey Poll

HDP announces it will run as political party instead of fielding independent candidates in June election, but faces tough 10 percent threshold More

Twitter Targets Islamic State

New research shows suspending Twitter accounts of Islamic State, its supporters has been effective; group, its backers are facing 'significant pressure,' says terrorism expert More

Video Former Sudan 'Lost Boy' Becomes Chess Master in NYC

Majur Juac made the leap from being a refugee in Africa to a master chess champion in US, where he shares his expertise with students More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
NASA Monitors Earth’s Vital Signs From Spacei
X
Rosanne Skirble
January 27, 2015 5:05 PM
The U.S. space agency, NASA, is wrapping up its busiest 12-month period in more than a decade, with three missions launched in 2014 and two this month, one in early January and the fifth scheduled for January 29. As VOA’s Rosanne Skirble reports, the instruments being lifted into orbit are focused on Earth’s vital life support systems and how they are responding to a warmer planet.
Video

Video NASA Monitors Earth’s Vital Signs From Space

The U.S. space agency, NASA, is wrapping up its busiest 12-month period in more than a decade, with three missions launched in 2014 and two this month, one in early January and the fifth scheduled for January 29. As VOA’s Rosanne Skirble reports, the instruments being lifted into orbit are focused on Earth’s vital life support systems and how they are responding to a warmer planet.
Video

Video Saved By a Mistake - an Auschwitz Survivor's Story

Dagmar Lieblova was 14 when she arrived at Auschwitz in December 1943, along with her entire Czech Jewish family. All of them were to die there, but she was able to leave after several months due to a bureaucratic mix-up which saved her life. Now 85, with three children and six grandchildren, she says she has a feeling of victory. This report by Ahmad Wadiei and Farin Assemi, of RFE/RL's Radio Farda is narrated by RFE’s Raymond Furlong.
Video

Video Weekly Protests in Korea Keep Japanese WWII Atrocities Alive

Every week in Seoul protesters gather in front of the Japanese Embassy to demand an apology and reparations from Tokyo for the thousands of South Korean women who were forced into prostitution during World War II. Although this year marks the 70th anniversary of the end of the war, these protestors have helped keep the issue of comfort women alive and made it difficult for Japan to move beyond its past wartime atrocities. VOA's Brian Padden reports from Seoul.
Video

Video Exercise: New Prescription for Parkinsons Disease

Exercise could be the new prescription for Parkinson's Disease, a progressive disorder of the nervous system that affects movement. More than six million people worldwide suffer from Parkinsons and they're traditionally treated with medication and surgery. Shelley Schlender has more.
Video

Video Brussels Shaken as New Greek Leader Challenges Europe’s Austerity Drive

Greece’s youngest-ever prime minister, 40-year-old Alexis Tsipras, was sworn in Monday after his victorious far-left Syriza party entered a coalition with far right rivals. Tsipras says he will restore dignity to Greece by ending spending cuts. So begins a new chapter for the country at the epicenter of Europe’s economic crisis - a change that has sent tremors across the continent, as Henry Ridgwell reports from London.
Video

Video Obama Urges Closer Economic Ties During Historic India Visit

U.S. President Barack Obama says the United States and India must do better to capitalize on untapped potential in their economic relationship - by removing some of the roadblocks to greater trade and investment. As VOA correspondent Aru Pande reports from New Delhi, Obama spoke after participating in India’s Republic Day celebration.
Video

Video White House Grapples With Yemen Counterterrorism Strategy

Reports say the U.S. has carried out a drone strike on suspected militants in Yemen, the first after President Barack Obama offered reassurances the U.S. is continuing its counterterrorism operations in the country. The future of those operations has been in question following the collapse last week of Yemen’s government. VOA White House correspondent Luis Ramirez reports.
Video

Video Worldwide Photo Workshops Empower Youth

Last September, 20 young adults from South Sudan took part in a National Geographic Photo Camp. They are among hundreds of students from around the world who have learned how to use a camera to tell the stories of the people in their communities through the powerful medium of photography. Three camp participants talked about their experiences recently on a visit to Washington. VOA’s Julie Taboh reports.
Video

Video US, Japan Offer Lessons as Eurozone Launches Huge Stimulus

The Euro currency has fallen sharply after the European Central Bank announced a bigger-than-expected $67 billion-a-month quantitative easing program Thursday - commonly seen as a form of printing new money. Henry Ridgwell reports for VOA from London on whether the move might rescue the eurozone economy -- and what lessons have been learned from similar programs around the world.
Video

Video Oil Price Drop Troubles Texas Producers

As oil prices have fallen over the past several months, drilling operations have slowed in some parts of the United States - including Texas, the state that surpasses all others in energy production. The Lone Star State’s energy output has been boosted in recent years by development of resources trapped deep below ground in the Eagle Ford shale deposit, which stretches across south central Texas. As VOA’s Greg Flakus reports from Karnes City, Texas, the drop in oil prices has created concerns,
Video

Video Nigerian Elections Pose Concern of Potential Conflict in 'Middle Belt'

Nigeria’s north-central state of Kaduna has long been the site of fighting between Muslims and Christians as well as between people of different ethnic groups. As the February elections approach, community and religious leaders are making plans they hope will keep the streets calm after results are announced. Chris Stein reports from the state capital, Kaduna.
Video

Video As Viewership Drops, Obama Puts His Message on YouTube

Ratings reports show President Obama’s State of the Union address this week drew the lowest number of viewers for this annual speech in 15 years. White House officials anticipated this, and the president has decided to take a non-traditional approach to getting his message out. VOA White House correspondent Luis Ramirez reports.

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

All About America

AppleAndroid

World Currencies

EUR
USD
0.8815
JPY
USD
117.85
GBP
USD
0.6581
CAD
USD
1.2420
INR
USD
61.404

Rates may not be current.