On Friday September 13th Reuters reported on the German Economy Ministry’s announcement that it did not foresee a significant recession in the near future.
In its monthly report the Ministry stated: “The German economy is going through a weak phase. A bigger downturn or even a pronounced recession is not expected at the moment.”
This acknowledged weakness refers to the recent 0.1% quarter-on-quarter shrink in the German economy from April to June. This reduction could continue into the next quarter signalling the start of a technical recession.
Following the financial crisis of 2008 Angela Merkel’s cabinet approved a more than 50 billion euro (EUR) stimulus package to stabilise the economy. In the subsequent decade Germany remained the dominant economic power in Europe.
This has been something of a double-edged sword, economic dominance and commitment to the European project has led the German taxpayers to suffer the burden of the EU debt crisis. Although the country has not seen the austerity and youth unemployment which have devastated the economies of southern europe, many Germans resent having to pay for their less productive fellow-europeans.
The reassurance from the German Economy Ministry comes following yesterday’s announcement by European Central Bank (ECB) President Mario Draghi. Mr Draghi announced a new stimulus package designed to prevent the Eurozone sliding into recession and a cut of its key interest rates to -0.5% in a bid to encourage lending.
German politicians and bureaucrats may welcome this central bank support, however it is possible that further Quantitative Easing will only prolong and worsen an inevitable recession. Alexander Horn has explored this in a recent column entitled: ‘The myth of the strong German economy’.
Monetary policy and financialisation has pushed German asset prices beyond their value in the real economy. This may have created new wealth and increased consumption in the short term, however it also zombified the economy. Before 2008 1.5% of German companies went bankrupt each year, this figure fell to 0.5% after the crisis. Meaning that many German companies should actually be dead in a ditch. A 2018 study by credit-reference agency Creditreform found that 15.4% of German companies could be classified as zombie firms.