January 27, 2023

No Bounce for Europe in Rebound by Germany

Despite Berlin’s hefty financial support of the euro zone’s more beleaguered members in the last few years, the economic crisis has corroded commercial ties between Germany and the rest of Europe. Countries like Italy and Spain no longer have the purchasing power they once did, and they trade less with Germany because of it.

Greece, the most distressed country in Europe, is now little more than a German rounding error. German exports to Greece plunged 40 percent from 2008, while Germany imported 9 percent less from Greece. Last year, Greece ranked 44th among German trading partners, just behind Vietnam.

No wonder German companies, cheered on by the government of Chancellor Angela Merkel, have turned their attention to faster-growing places like Asia or the United States.

“Right now it’s a decoupling story rather than a helping-hand story,” said Carsten Brzeski, a senior economist at the Dutch bank ING.

It is not simply an economic issue, but a geopolitical one.

Ms. Merkel is running for re-election this month in a campaign in which one of the few debating points is how many more financial handouts Germany will give to its weaker neighbors. She has made a conscious effort of building closer ties with bigger and faster-growing markets like China. If the Merkel government succeeds in making Germany a bigger global player through trade and investment policy, it not only insulates Germany from European structural woes but also ensures that it remains a global economic force in its own right.

For the rest of the euro zone and the larger European Union, however, unity depends on the sustained energy and commitment of Germany, the wealthiest and most powerful member. The more that Germany sees its long-term interests lying outside Europe, the less certain the future of the entire European project.

“Germany is less willing to play ball,” said Stefano Micossi, director general of Assonime, an Italian business group and research organization. Rather than pulling together, he said, European leaders have been “falling back to mutual mistrust and national solutions.”

On Tuesday, the Organization for Economic Cooperation and Development said that even as Germany resumed growth, the euro zone’s most vulnerable countries were unlikely to follow until sometime next year. European banks remain weak, the group said, while lending — usually considered a prerequisite for economic growth — continues to decline.

The euro zone’s economic future remains heavily dependent on Germany, the biggest market for products like shoes from Italy or Ford minivans made in Spain. German companies like Linde, a large supplier of gases for use in industry and health care, are major employers in Southern Europe.

But Linde’s big growth this year was in the United States, where sales rose 58 percent in the third quarter, to $2.6 billion, thanks to the purchase of Lincare, a company that supplies oxygen to patients in their homes.

The United States has also become a hot market for German companies like Voith, a maker of industrial equipment, which said last month that it expected to profit from a new law intended to encourage construction of hydroelectric power plants. Voith issued a statement calling the new law “terrific news” — no surprise considering that the company is one of the world’s largest suppliers of hydropower equipment.

In addition, China has become the most important market for Volkswagen, which sold 1.5 million cars there in the first six months of this year, more than in Western Europe. Volkswagen is also putting renewed emphasis on North America. In 2011, it opened a factory in Chattanooga, Tenn., that contributed to a 10 percent increase in American sales through June from a year earlier.

Article source: http://www.nytimes.com/2013/09/04/business/global/no-bounce-for-europe-in-rebound-by-germany.html?partner=rss&emc=rss