The standard playbook calls for a healthy dose of government spending that would inject money into the economy to fight the ongoing recession. In theory Berlin has plenty of fiscal room, with low debt compared to its European peers. But the rules it introduced — European and national — tie its hands. A slower rate of cuts may provide a lifeline to the economy — but they are still cuts.
“They are essentially choosing not to stimulate even though they can,” said Daniel Kral, lead economist at Oxford Economics.
Looking ahead, “it’s hard to see any meaningful pick-up,” he added.
European diplomats might be tempted to relish Germany’s current difficulties, given its role as the enforcer of austerity in the previous crisis. But as the eurozone’s largest economy, a problem in Germany eventually becomes a problem for the rest of the bloc, said Davide Oneglia, director of European and global macro at TS Lombard.
What’s certain is that if Germany does request that the Commission ease up on its debt repayment schedule, Berlin will find it harder to take a tough line toward Rome and Paris, should they drag their feet on painful cost-cutting measures.
For now, the country’s fractious coalition government is unlikely to find the agreement needed to change course. National elections next September — in which the opposition center-right Christian Democratic Union party is expected to do well — could provide the political space for an economic reset.
“Germany has all the resources it needs to turn the ship around,” Oneglia added. “If a crisis is what it takes for them to change, then a crisis is welcome.”
