Following news on Thursday that the European Union will support Greece in its fiscal hour of need, it’s still the case that the cost of euro-peripheral bailouts will have to be borne by someone.
For the time being in Europe that means the community’s most productive members, ie Germany and France.
And on Friday BNP Paribas makes the valid point that for such costs to be made up, the likes of Germany will have to refocus exports towards markets outside of the European Union.
That’s because demand from within Europe is just not there.
To wit the following chart:
Friday’s German Q4 GDP figures, meanwhile, confirmed just how much that shift is needed. German growth — without the support of government emergency measures, including subsidies for car purchases — came in flat compared with the previous three months, according to the country’s statistical office. The market had been expecting 0.2 per cent growth.
This was despite a rise in exports. As Reuters reported:
Exports rose by 3 per cent on the month in December, pushing foreign demand above the year-ago level for the first time in 14 months.
The above showing just how dependent Germany’s economy is becoming on foreign demand for its exports.
Which means, according to BNP Paribas, an envitable weakening of the euro to come:
The German GDP for Q4 is much weaker than expected, showing a flat q/q reading against the consensus for 0.2% q/q growth. This risks the overall eurozone growth coming in much weaker than expected. Indeed, it was expected that the growth readings at the periphery of Europe would be weak, but the countries at the core of Europe were expected to put in a far more robust performance. However, the initial readings from Germany suggest that weakness in the Eurozone is far broader than initially anticipated. This will add to the euro’s problems.
A weaker euro though will of course be helpful to boosting Germany’s ex-EU exports.
Related links:
If I had a pound, peseta, drachma or a deutsche-mark…- FT Alphaville
German economy grinds to a halt – FT
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