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| Europe |
| German crisis of confidence 'getting worse' |
| 2005-11-25 |
| A top Bundesbank governor warned yesterday that Germany was sliding deeper into fiscal crisis and risked a profound failure of nerve. Jurgen Stark, the bank's deputy chief, said it was far from clear that the new Left-Right government of Angela Merkel was up to the task of rescuing Germany from slump and self-despair. "There is no confidence in the future, there is no confidence in the sustainability of public finances, and no confidence in the ability of policymakers to solve the problems," he said. "It remains to be seen whether the grand coalition under Merkel can solve the confidence and growth crisis." Under pressure from the Left, Chancellor Merkel has had to abandon plans for an overhaul of the tax system. Instead, the coalition is raising VAT from 16pc to 19pc. The economy could face a "double whammy" as the European Central Bank moves to raise interest rates next week for the first time in two and a half years. The IFO business climate reported yesterday showed a sudden slide for October. After stewing in its worst slump since the Great Depression, Germany has shown signs of life over recent months - growing 0.6pc in the third quarter. But there have been two false dawns already, and the latest recovery is driven by exports. While Germany has overtaken the US to become the world's top exporter, capturing 10pc of the global share, it is a double-edged feat. Ultra-competitiveness has come at the expense of German workers. The corporate wage squeeze has driven down unit labour costs by 4pc over the last year alone. Shell-shocked Germans are still staying away from the shops. Unemployment has averaged 4.9m this year. Adding to the gloom, Berlin failed to sell a €7.96billion block of 10-year bonds this week, the first auction flop since 2000. It follows a warning by Standard & Poor's that Germany might lose its coveted AAA credit agency unless it seizes the nettle of reform. S&P doubted whether the package agreed after weeks of arduous talks was enough to stop the downward drift. "The coming years offer the last chance to mitigate the long-term fiscal implications of Germany's ageing population in a manner that is not socially disruptive,'' it said. It said Berlin must stick to a "credible medium-term fiscal plan that will stabilise and eventually reverse the current rise in government debt". The budget deficit could reach 4pc of GDP this year, breaching the constitution, while the national debt is nearing the danger level of 70pc of GDP. Undaunted, foreign funds have been snapping up German assets at bargain prices this year, while Frankfurt's Dax stock index is up strongly. |
| Posted by:lotp |
| #8 It will be interesting to see who is the first German politician to call for departure from the Euro and return to the DM. While I think that has very little to do with Germany's problems or their resolution, it will strike a responsive chord with the electorate. |
| Posted by: Omaising Thronter9359 2005-11-25 19:00 |
| #7 wait til their leader gets attacked by a rabbit...then you'll know "profound failure of nerve" |
| Posted by: Frank G 2005-11-25 18:26 |
| #6 HalfEmpty is worried about excess capital formation and the lack of return on same. |
| Posted by: Shipman 2005-11-25 17:24 |
| #5 Please to be hush. A German defecit is not to mucher to be feared, worry about when the ECB starts discounting Itaian and perhaps Spanish bonds. Thatn skary. |
| Posted by: HalfEmpty 2005-11-25 10:54 |
| #4 Actually, given population trends and the lack of demand it's more likely we'll see deflation similar to Japan's rather than the German inflation of the Great Depression. |
| Posted by: DoDo 2005-11-25 08:46 |
| #3 get the wheel barrows out. |
| Posted by: Mr. poop feathers 2005-11-25 04:09 |
#2 The budget deficit could reach 4pc of GDP this year, breaching the constitution, while the national debt is nearing the danger level of 70pc of GDP For comparison, the US Deficit was around 368 billion for fiscal year 2005, total debt is 8.1 trillion, and GDP is 11.75 trillion. Thus our deficit 3.1% of GDP and our national debt is 69% of GDP. Not that much different from Germany. The big difference is that our economy is growing at 3-4%, and our budget deficit is dropping. President Bush pushed through the tax cuts which helped boost both GDP and tax revenue. How does Germany get its economy growing when it can't enact needed economic reforms? |
| Posted by: Chuck 2005-11-25 03:19 |
| #1 Weimar? |
| Posted by: RWV 2005-11-25 00:46 |