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.
Russia’s Syria Involvement Raising Concerns in Europei
Luis Ramirez
October 02, 2015 4:45 PM
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 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 First Self-Driving Truck Debuts on European Highways

The first automated semi-trailer truck started its maiden voyage Friday, Oct. 2, on a European highway. The Daimler truck called 'Actros' is the first potentially mass-produced truck whose driver will be required only to monitor the situation, similar to the role of an airline captain while the plane is in autopilot mode. VOA’s George Putic 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 Migrant Influx Costs Europe, But Economy Could Benefit

The influx of hundreds of thousands of refugees and migrants is testing Europe’s ability to respond – especially in the poorer Balkan states. But some analysts argue that Europe will benefit by welcoming the huge numbers of young people – many of them well educated and willing to work. Henry Ridgwell reports from London.

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.

Video New Fabric Helps Fight Dust-Related Allergies

Many people around the world suffer from dust-related allergies, caused mainly by tiny mites that live in bed linen. Polish scientists report they have successfully tested a fabric that is impenetrable to the microscopic creatures. VOA’s George Putic has more.

Video Burkina Faso's Economy Deeply Affected by Political Turmoil

Political turmoil in Burkina Faso over the past year has taken a toll on the economy. The transitional government is reporting nearly $70 million in losses in the ten days that followed a short-lived coup by members of the presidential guard earlier this month. The crisis shut businesses and workers went on strike. With elections on the horizon, Emilie Iob reports on what a return to political stability can do for the country's economic recovery.

Video Fleeing Violence, Some Syrians Find Refuge in Irbil

As Syrians continue to flee their country’s unrest to seek new lives in safer places, VOA Persian Service reporter Shepol Abbassi visited Irbil, where a number Syrians have taken refuge. During the religious holidy of Eid al-Adha, the city largely shut down, as temperatures soared. Amy Katz narrates his report.

Video Nigeria’s Wecyclers Work for Reusable Future in Lagos

The streets and lagoons of Africa's largest city - Lagos, Nigeria - are often clogged with trash, almost none of which gets recycled. One company is trying to change that. Chris Stein reports for VOA from Lagos.

Video Sketch Artist Helps Catch Criminals, Gives a Face to Deceased

Police often face the problem of trying to find a crime suspect based on general descriptions that could fit hundreds of people in the vicinity of the crime. In these cases, an artist can use information from witnesses to sketch a likeness that police can show the public via newspapers and television. But, as VOA’s Greg Flakus reports from Houston, such sketches can also help bring back faces of the dead.

Video Thailand Set to Build China-like Internet Firewall

Thai authorities are planning to tighten control over the Internet, creating a single international access point so they can better monitor content. VOA Correspondent Steve Herman reports from Bangkok on what is being called Thailand’s own "Great Firewall."

Video Croatian Town’s War History Evokes Empathy for Migrants

As thousands of Afghanistan, Iraqi and Syrian migrants pass through Croatia, locals are reminded of their own experiences with war and refugees in the 1990s. VOA's Daniel Schearf reports from the town of Vukovar, where wartime scars still are visible today.

Video Long Drought Affecting California’s Sequoias

California is suffering under a historic four-year drought and scientists say even the state's famed sequoia trees are feeling the pain. The National Park Service has started detailed research to see how it can help the oldest living things on earth survive. VOA’s George Putic reports.

VOA Blogs

World Currencies


Rates may not be current.