Germany is enjoying expansion in factory orders that is exceeding all expectations and enjoying being the developing world’s supplier of industrial tools and machinery. At the same time they are being asked to be the supporting economy for continental Europe. Overall economic growth in Germany has slowed to 0.6% from a very nice 3.0% last year. Opportunity for Germany clearly resides in exporting tools and machinery to developing economies as economic growth accelerates in these areas at 5% and 6% rates while Europe’s turns negative. Germany’s attention to assisting southern European counties has not been without hesitation. The German’s have asked for restraint in government spending by the countries asking for aid. They have also asked for secure collateral rather than assets based on hope.
The French election may significantly change the landscape. A true Socialist has now taken the helm that proposes standing up to the Germans and letting them know that France will not be pushed around. The President-elect is proposing increased spending and higher taxes on the wealthy that will reach 75%. He is not in favor of increasing the retirement age or in reducing benefits. All of this sounds good but, in the end, someone has to pay for it all. That is where it gets a bit vague and Germany might not be interested.
Raising taxes has a general impact of slowing the economy and increasing debt on an already fragile economy will result in higher interest rates being demanded by the lender. All of this slows an economy, not expand it. I think they are forgetting about the contribution business growth provides. As Ms. Thatcher commented, the government will eventually run out of other people’s money.
With the needing countries rejecting the terms and conditions coming from the Germans, and France now making sure Germany doesn’t “tell France what to do”, how long will it be before Germany says, Jetzt reicht’s mir aber and concentrate on the developing world?