The German Economy Caves, And Eurozone Bailouts Take On New Dimension

Last year, German exports rode to a new record, jobs were being created in massive numbers, real wages rose, housing and real estate boomed, the federal budget was nearly balanced, and consumers felt good and spent money. There were moments in 2012 that made people dream of a repeat performance—despite the havoc that the Eurozone debt crisis has been wreaking.

Whatever was happening, Germany would be able to make up for declining exports to the Eurozone with strong exports to Asia and the US. Internal demand would remain solid. And this illusion of durable economic strength and fiscal virtue has tainted the discussion about saving the euro, bailing out debt-sinner countries in return for austerity measures, and keeping the European Central Bank in check.

But now the crisis has moved from Germany’s front yard to its doorstep and is about to enter its living room. Beer sales, for example. That the German Federal Statistical Office tracks them shows just how crucial a staple beer is. Alas, beer sales to customers in Germany dropped 2.3% in the first half over the same period last year, and ominously, exports dropped 2.9% [for the worldwide beer phenomenon, beer consumption per capita, and where the growth really is, read…. Beer, A Reflection Of The World Economy?]

Auto sales got clobbered in July, dropping by 5% from July last year, and by 16.5% from June, knocking year-to-date sales, which had been holding up well, into the red (-0.1%). Auto sales have been a fiasco in the Eurozone for a while. In Greece, where they’d been plummeting for years, they plummeted again in the first half, by 41.3%! In Italy, by 19.7%, in France by 14.4%, in Belgium by 12.7%. But until July, Germany had been spared. No more. Of the big brands, only Audi (Volkswagen) was up (+14.3%). The others got hammered: Opel (GM) -18.6%, BMW, Mini -17.9 %, Mercedes -14.6 %, and Ford -4.4%. Even VW, market-share leader and on a phenomenal worldwide roll, was down 1.5%.

Retail sales, which had also been doing very well, stalled. And the closely watched Ifo index for July deteriorated so sharply that Hans-Werner Sinn, President of the Ifo Institute, admitted, “The euro crisis is having an increasingly negative impact on the German economy.”

Germany’s manufacturing industry is now in a rout. Output and new orders dove in July at a rate not seen since April 2009, the depth of the great recession. It was the 4th month in a row of lower production volumes, and the 13th months in a row (!) of declining new orders—a terror for future production. The overall PMI index crashed to the lowest level since June 2009. Exports were hardest hit, particularly to Western Europe, Asia, and the US, the three largest markets in the world! The decline in exports was steepest since May 2009. And there is talk of “job shedding.”

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