Discuss the future with a Euro optimist, and it’s never long before the conversation comes around to Germany. “They may keep us waiting”, they say, nodding sagely, “but in the end they will do the right thing”. By which they mean, of course, get out the cheque book and start sending some seriously large sums to their cousins in southern Europe. “It’s in their own interests to do so”, we are assured.
A poll in today’s Financial Times, combined with some horrendous manufacturing data this morning, may be beginning to undermine the optimists case, certainly when it comes to sending more money to Greece. Around three quarters of Germans are ready to write off Greece as a member of the Eurozone, just a quarter thinking it is worth keeping them on board. If you are Angela Merkel, less than a year away from a general election, those are serious numbers.
Germany’s got some big decisions to make in the next few months. Does it give Greece the next tranche of its bailout money in October, despite the fact that every target for reforming the country’s finances has been missed by a country mile? Does it agree to a banking union that could soon mean its taxpayers effectively underwriting the basket-case banks of southern Europe? Does it allow the European Central Bank to throw yet more money at the problem, allowing the bank to turn itself into a mechanism for transferring wealth from Germany to the rest?
The German public is showing no enthusiasm for any of these options - nor are many German politicians - and it’s not hard to see why. The German economy, having appeared to be sailing serenely above the storm that has engulfed the Club Med, is suddenly being lashed by the winds of an approaching slow-down. German exports in August fell at the fastest rate since April 2009, and while its manufacturing figures were up slightly on the previous month, they are still firmly in negative territory. For some months now the strength of German manufacturers has been keeping the Eurozone out of recession, but with markets slowing down everywhere, even in China, they can’t defy gravity for ever.
And this is happening at exactly the time that Germans are being asked to transfer a huge slice of their wealth abroad to keep the Euro from falling apart, the poorer nations wanting German cash not only to keep their borrowing costs down, but also to support their standard of living. Loans to Greece or Portugal or Ireland were one thing (even if there was little realistic chance of getting them back). The sort of sums being talked about for Spain or even Italy would be quite another.
Madrid is still insisting that it won’t need a bailout, though few believe it. One by one the Spanish regions are lining up to be bailed out by the Central Government (Andalusia is the latest one today) with money that the treasury in Madrid is having to borrow at extortionate rates (still above 6%). Italy is contracting faster than any major economy, car sales in August down an astonishing 20% on a year ago. French unemployment has today gone past 3 million, with the collapse of a large bank putting another €5bn hole in the public finances. Seen from Berlin, the potential demands on the German taxpayer appear to stretch endlessly into the future.
So what happens if the Germans slam the front door and put a sign in the window saying ‘Cant Pay, Won’t Pay’? Well I think we all know what comes next, and the only certainty is that it won’t be pretty.