Does slow growth in Germany point to global recession?

Marketplace Staff Aug 16, 2011

STEVE CHIOTAKIS: Germany today reported Gross Domestic Product grew by just .10 percent between April and June. The news of slow growth comes on the day German leader Angela Merkel meets with French president Nicolas Sarkozy. The two will no doubt talk about the GDP and of course, the European debt crisis which has plagued the continent for a couple of years now. Think Greece and Portugal and Ireland. Because Germany is Europe’s biggest economy, those debt crisis countries are depending on Berlin for the lion’s share of bailouts.

Ambrose Evans-Pritchard is international business editor of The Daily Telegraph and he’s with us now from London to talk about this story. Good morning, sir.

AMBROSE EVANS-PRITCHARD: Good morning.

CHIOTAKIS: I thought Germany was going strong — I know it’s the biggest economy in Europe — what’s happened?

EVANS-PRITCHARD: Well, a lot of people thought that, but they shouldn’t have. Basically, the whole of the Eurozones are slowing very hard and may go into a double-dip recession.

CHIOTAKIS: I know Germany has been the lynchpin to saving the Euro, during this European debt crisis. Do you think this slow growth is going to threaten that?

EVANS-PRITCHARD: The problem with the slow growth is that it damages the debt trajectory of all these countries. The same also applies, also to Germany — it doesn’t have unlimited resources. It can’t back stop 2-3 billion Euros for an entire system, so the weaker the economy of Germany is, the more it sort of throws into relief the fact that all the assumptions that it could back stop the system, really are invalid.

CHIOTAKIS: And if Germany is slowing, Germany is the biggest economy in Europe. Does that threaten a new European recession?

EVANS-PRITCHARD: Well, I think that’s a very serious risk, actually. It will depend on the actions of the authorities. But, the problem is, they’re sticking to their script — everybody must cut their budgets, further tightening next year, there’s a proper therapeutic dose of fiscal tightening. If you do it too hard, you’re just going to tip these economies back into recession, it’s going to be self-defeating, you’re going to end up in an even worse situation because you’re not going to balance your budgets, you just end up with equally large deficits, but with a smaller economy and more people without a job.

CHIOTAKIS: Ambrose Evans-Pritchard, international business editor of The Daily Telegraph. Thank you, sir.

EVANS-PRITCHARD: Thank you.

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