Germany is slowing down, even worse, it is at risk of recession. An alarm shared by many, especially outside the German borders. Indeed, the latest data leaves little room for optimism. In August, industrial production was down 4% from the previous month, the worst decline since 2009. Of course, the index is quite volatile, and therefore a number of factors should be taken into account – for example that this year the German holidays happened in August - but it is still an indicator that adds up to others that are anything but positive. Such as orders to industry, down by 5,7% on a monthly basis and, above all, the gross domestic product which in the second quarter recorded a – completely unexpected – contraction of 0,2%. Not even the dynamics of the third quarter bode well and this is why the International Monetary Fund cut its growth estimates by half a percentage point in 2014 (from 1,9 to 1,4%) and by 0,2% in 2015 (1,7 to 1,5%).
And so, despite some encouraging data, such as those arriving from retail sales (the index increased by 2,5% in August, recording the sharpest increase since June 2011) and from the labor market (unemployment is at an all-time low), one hastens to conclude that the German locomotive is no longer towing. But why all this catastrophism? The reason is soon to be said. The louder the alarm, the greater the pressure on the Berlin government to implement expansionary fiscal policies, above all through greater spending on infrastructure investments. The goal is to stimulate domestic demand, to the benefit of the German economy but also of that of European countries and, therefore, indirectly of the US economy, which incidentally is the largest shareholder of the IMF. In other words, Germany is being asked to consume more and, consequently, to import more.
Moreover, there is no doubt that the enormous German trade surplus (in July it exceeded 23 billion euros) must be reduced. Also because, reaching 2013% of GDP in 7 (in 2014, the IMF estimates it to be slightly down, at 6,2%), for several years it has exceeded 6%, i.e. the value that the Six Pack indicates as "indicative value" not to be exceeded. However, it should be specified that, precisely because it is an "indicative" value (and not a "threshold" value as is the 3% in the context of agreements on tax discipline), exceeding it does not mean, as is often erroneously reported by the international press, violating the rules. That is why, Europe has decided to initiate an investigation against Germany "only" and not an infringement procedure. The survey, which ended last April, did not reveal excessive macroeconomic imbalances, but despite this, Brussels too has pointed out to the Berlin government that it would be desirable to reduce the current account surplus, through increases in public spending.
Germany, however, continues to turn a deaf ear and persists in implementing fiscal policies of the opposite sign, starting with the advance of the balanced budget to 2015 and the achievement of the debt-to-GDP ratio at 60 per cent in 2019, the which involves a reduction of no less than 15 percentage points in just under five years. But why so much fiscal rigor? The reasons are mainly four.
Firstly, the opinion that prevails within the ranks of the government (but not only) is that the current slowdown is of a temporary nature, linked to external factors, such as the current geopolitical crisis. Therefore, there is no reason to worry, much less take action. And then, even in the event of a worsening of growth prospects, Germany has always been reluctant to implement macroeconomic policies, especially fiscal ones, in an anti-cyclical sense.
Secondly, considering the rate of aging of the population (the highest in the Union), keeping the accounts in order means guaranteeing the sustainability of the German welfare system. A point on which all political forces converge.
Thirdly, and this is certainly the most political aspect, with the affirmation of the new Eurosceptic party Alternative f?r Deutschland in the recent regional elections, the Merkel government will be forced to take more rigorous positions as regards the use of taxpayers' money. With 10 percent of the votes achieved in Thuringia, Saxony and Brandenburg, it will in fact be easier for this new political force to make its voice heard on issues related to aid to countries in difficulty.
The last reason, but certainly not the least important even if the least highlighted in the Italian public debate, is that linked to the loss of confidence in Europe. From the German point of view, the crisis originated in Europe with the breakdown of the fiduciary pact between the countries of the monetary union, at the moment in which it was discovered that Greece had fixed the accounts. The worsening of the economic situation has certainly not facilitated the restoration of trust between the member states, also because some of them have not maintained the agreements made. Just think of when the ECB, in the summer of 2011, decided to come to the "rescue" of countries in difficulty, such as Italy, by purchasing public debt securities in exchange for promises of reforms that were never kept. The result of the intervention of the Frankfurt institute was that of a temporary improvement to then return, if possible, worse than before. That is why, this type of "relief" is considered wrong by the Germans: the president of the Bundesbank, Jens Weidmann, has called it a "drug" that eases the pressure on national governments. Following the same logic, even greater German internal demand would risk becoming a "drug", effective in giving oxygen to the economies of southern Europe in the short term, but which would easily be used as an excuse to postpone reforms, especially those a high political cost. In essence, what the Germans want to avoid is to implement aid that encourages moral hazard.
This is why, Chancellor Merkel likes the idea of "contractual arrangements", those contracts in which the country that signs them receives aid, in the form of more time or more funding, but only in exchange for commitments to implement a series of agreed reforms ex ante with Brussels. If these contracts were formalized in the future, probably Germany too would be willing to sign one.
