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POLITICAL ECONOMY
Neighbors' woes hit German growth targets
by Staff Writers
Berlin (UPI) Dec 7, 2012


disclaimer: image is for illustration purposes only

Germans are finding their economically troubled eurozone neighbors are beginning to put Germany's much cherished economic prosperity at risk, this week's financial data indicate.

That outlook spells trouble for Chancellor Angela Merkel, whose 70 percent approval ratings have prompted political pundits to predict the Christian Democrat leader is unbeatable as she prepares to contest for a third term in 2013.

Merkel was re-elected CDU party leader Tuesday with her best-ever result of 97.94 percent. "She's at the peak of her powers and will be very hard to unseat," Der Spiegel Online said.

That was Tuesday, though. Friday's Bundesbank figures show German growth is slowing, and it's only a matter of time that begins to be reflected in job losses.

The central bank cut its growth forecast for next year, saying the economy might be entering a recession.

Revised figures suggest German growth in 2013 is expected to be just 0.4 percent, compared with a June 2012 forecast of 1.6 percent. The forecast says growth will bounce back to 1.9 percent in 2014.

The same can't be said for Germany's industrial output, which dropped sharply to 2.6 percent in October.

The European Central Bank already predicts eurozone growth slowing or stalling, not only because of stagnation of French and Dutch economies but also due to the contagion of recession in the south, now seen to be spreading from Italy and Spain to the weaker of the 17-member eurozone countries.

So far, Merkel's answer has been that Germany will keep growing.

Despite strong political signs, however, Merkel still needs a coalition partner, a substitute for the ailing Free Democrats, if she continues to lead in the polls.

In recent comments the chancellor mellowed criticism of both the Greens and arch rival center-left Social Democrats -- both potential partners for her next coalition.

Analysts warned Merkel's re-election strategy could still come unstuck if SPD wins a regional election in Lower Saxony in January 2013. A SPD win in the northern state could prompt an alliance between the winners and the Greens, in a potential setback to Merkel and possible indication of trends in the national election later in 2013.

In the meantime, Merkel remains defiantly optimistic. She told CDU loyalists hers is "the most successful government since reunification" of West and East Germany in 1990, and called Germany the "growth engine of Europe," Der Spiegel reported.

She cautioned against over-optimism, warning of "turbulent times" and "heavy, stormy seas" where the CDU was guiding the country "safely with a clear compass."

All this can still change if German growth data continues to slide, analysts said. Growth across Europe is falling. At the same time, diplomatic and political developments beyond Europe's borders are making new demands on EU money.

This week Germany announced it would send 400 troops to Turkey to man Patriot missiles on the Syrian border as part of a growing NATO commitment in the Syrian crisis.

Unlike the Libya operation last year, which was partly paid for through Libya's oil reserves, a NATO-led operation will need to be funded internally, a significant drain on EU and NATO cash resources.

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