Is German bad news good news for Europe?

With so many understandably focused on Hurricane Sandy and its aftermath, few noticed this week’s economic numbers out of Germany – a key part of the European puzzle. Yet the latest data releases could well prove consequential. 

Germany is quite an economic success story. It is also the world’s fourth largest economy, and its role in Europe is both central and critical. 

So far, Germans have been immune from the mess around them. While other eurozone economies have experienced economic contraction, high unemployment and periodic financial scares, Germany has maintained exceptional stability – so much so that the unemployment rate even reached historic LOWS (yes lows) earlier this year. 

Most agree that a good part of Germans’ good fortune is home grown; but not all.

For years, Germany has maintained fiscal discipline and implemented deep structural reforms.  But it has also benefited from the weaker currency associated with its membership of the eurozone. And its borrowing costs have been lowered by all the “flight capital” coming into the country from struggling neighbors. 

But it is not all this straightforward.

Some feel that Germany’ssuccess has undermined its ability to comprehend what other eurozone economies are going through. Consequentially, the collective response to the region’s existential debt crisis has consistently been too little, too late.

Others disagree. For them, Germany’s strength acts as an anchor of relative stability for the eurozone as a whole – both present and future. 

This is where this week’s data releases come in.

Germany’s jobs numbers disappointed as unemployment rose by more than expected. Meanwhile, economic confidence numbers deteriorated.

These indicators confirm that German economic growth is weakening, and, most likely, will continue to do so in the months ahead. But it is not clear what this evolving economic turn in Germany means  for the rest of Europe. 

Will it make Germans more insular or, instead, cause them to engage more constructively in a region-wide solution? We should hope for the latter but worry about the former,as it’s essentially a toss-up at this stage.

Stay tuned.

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