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.

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.”


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

US, China Have Dueling Definitions of Cybersecurity

Analysts say attribution or or proving that a particular individual or government is responsible for a hack, is a daunting task More

Snowden: I'd Go to Prison to Return to US

Former NSA contractor says he has not received a formal plea-deal offer from US officials, who consider him to be a traitor More

Goodbye Pocahontas: Photos Reveal Today's Real Native Americans

Weary of stereotypes, photographer Matika Wilbur is determined to reshape the public's perception of her people More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Making a Minti
October 07, 2015 4:17 AM
While apples, corn, and cranberries top the list of fall produce in the US, it’s also the time to harvest gum, candy, and toothpaste—or at least the oil that makes them minty fresh. Erika Celeste reports from South Bend, Indiana on the mint harvest.

Video Making a Mint

While apples, corn, and cranberries top the list of fall produce in the US, it’s also the time to harvest gum, candy, and toothpaste—or at least the oil that makes them minty fresh. Erika Celeste reports from South Bend, Indiana on the mint harvest.

Video Activists Decry Lagos Slum Demolition

Acting on a court order, authorities in Nigeria demolished a slum last month in the commercial capital, Lagos. But human rights activists say the order was illegal, and the community was razed to make way for a government housing project. Chris Stein has more from Lagos.

Video Self-Driving Cars Getting Closer

We are at the dawn of the robotic car age and should start getting used to seeing self-driving cars, at least on highways. Car and truck manufacturers are now running a tight race to see who will be the first to hit the street, while some taxicab companies are already planning to upgrade their fleets. VOA’s George Putic has more.

Video TPP Agreed, But Faces Stiff Opposition

President Barack Obama promoted the Trans-Pacific Partnership on Tuesday, one day after 12 Pacific Rim nations reached the free trade deal in Atlanta. The controversial pact that would involve about 40 percent of global trade still needs approval by lawmakers in respective countries. Zlatica Hoke reports Obama is facing strong opposition to the deal, including from members of his own party.

Video Clinton Seeks to Boost Image Before Upcoming Debate

The five announced Democratic party presidential contenders meet in their first debate next Tuesday in Las Vegas, Nevada. Former secretary of state Hillary Clinton continues to lead the Democratic field, but she is getting a stronger-than-expected challenge from Vermont Senator Bernie Sanders. VOA National correspondent Jim Malone has more from Washington.

Video Music Brings Generations Together

When musicians over the age of 50 headline a rock concert, you expect to see baby boomer fans in the audience. Boomer rock stars have boomer fans. Millennial rock stars have millennial fans. But this isn’t always the case. Take the Lockn’ Music festival which took place in mid-September in rural Arrington, Virginia. Here, Jacquelyn de Phillips discovered two generations of people who are considered quite different in the outside world, spending 4 days together in music-loving harmony.

Video Ukranian Artist Portrays Putin in an Unusual Way

As Russian President Vladimir Putin was addressing the United Nations in New York last month, he was also being featured in an art exhibition in Washington. It’s not a flattering exhibit. It’s done by a Ukrainian artist in a unique medium. And its creator says it’s not only a work of art - it’s a political statement. VOA’s Tetiana Kharchenko has more.

Video South Carolina Reels Under Worst-ever Flooding

South Carolina is reeling from the worst flooding in recorded history that forced residents from their homes and left thousands without drinking water and electricity. Parts of the state, including the capital, Columbia, received about 60 centimeters of rain in just a couple of days. Authorities warn that the end of rain does not mean the end of danger, as it will take days for the water to recede. Zlatica Hoke reports.

Video Russia’s Syria Involvement Raising Concerns in Europe

European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video Nano-tech Filter Cleans Dirty Water

Access to clean water is a problem for hundreds of millions of people around the world. Now, a scientist and chemical engineer in Tanzania (in East Africa) is working to change that by creating an innovative water filter that makes dirty water safe. VOA’s Deborah Block has the story.

Video Demand Rising for Organic Produce in Cambodia

In Cambodia, where rice has long been the main cash crop, farmers are being encouraged to turn to vegetables to satisfy the growing demand for locally produced organic farm products. Daniel de Carteret has more from Phnom Penh.

Video Botanists Grow Furniture, with Pruning Shears

For something a bit out of the ordinary to furnish your home, why not consider wooden chairs, crafted by nature, with a little help from some British botanists with an eye for design. VOA’s Jessica Berman reports.

VOA Blogs

World Currencies


Rates may not be current.