Macroscope | Europe’s deepening economic divide will eventually rip the euro apart
It’s a classic tale of two economies, with Europe’s haves and have-nots pulling further apart and it is not going to have a happy ending. Germany’s economy is finishing 2016 on a stronger note while the euro zone’s struggling nations remain on a weak footing going into 2017. It is building into a dangerous political powder keg as Europe squares up to critical elections next year.
Many Europeans will be watching Germany’s economic performance through gritted teeth. Even if Germany’s growth record in the last year has been less than stellar, the economy is enjoying record low unemployment, rising productivity and rock solid government finances.
It’s a very different picture on the other side of the tracks. Weaker euro zone economies, especially those which suffered extreme hardship during the 2008 financial crash – like Greece, Portugal, and Spain – can only look on with envy. Even the bigger nations like France and Italy remain in the doldrums, stuck in Germany’s shadow with much higher jobless rates, much poorer competitive positions and precarious public sector finances.
After a rotten third quarter, with annual GDP growth plunging down to 0.8 per cent, the early signs are that Germany’s economy is starting to bounce back. It’s all thanks to the flood of cheap money coming from the European Central Bank’s QE programme, the stimulus from the weaker euro and a better mood finally starting to surface among German consumers and businesses.
What is abundantly clear is Germany’s road to economic success has been at the expense of other European country’s economic failure
According to the latest survey from Nuremberg-based research institute GfK, German consumers are feeling much more upbeat about the future thanks to record high employment, increased job security, rising real wages and low borrowing costs. It means consumer spending has replaced exports as Germany’s main economic growth driver.
The same is true for German business morale, with the benchmark IFO institute’s sentiment index ending the year on a much more cheerful note, thanks to a strong bounce in new orders. It looks like German corporate sentiment is shrugging off the risks of new US president Trump and the uncertainties thrown up by Britain’s Brexit vote.