As Germany's economy rebounds, anxiety prevails

Press quote (NPR)
23 July 2010

"If German wages are falling, falling by 1.5 percent, the Greeks and the Italians, etc., have to make sure that their wages fall by even more than that. Now, that spells slump or at least very, very weak growth. Very weak growth or slump is lethal for economies as indebted as these economies, because slump, deflation implies increases in the real value of debt." [Simon Tilford] warns that another giant obstacle to Germany's speedy recovery is what he calls the country's dangerous over-reliance on exports. ... Germany cannot use exports to lift the eurozone out of its crisis. "Germany has been a huge drag on the eurozone economy because its growth has been dependent almost exclusively on exports. Domestic demand in Germany has been stagnant … Now that has led to the emergence of an enormous trade surplus in Germany with the rest of the eurozone. Now, that's not a model that everyone can follow simultaneously. That's a mathematical impossibility. One country's surplus is another country's deficit," … Tilford also warns that Berlin's federal budget cuts — the biggest austerity plans in the post-war era — are "the last thing the eurozone needs right now." He says Germany needs to spend, invest and consume more domestically if the eurozone is to pull out of the sovereign debt crisis.