Saturday, January 22, 2011

The Two Europes: Resentment Grows Against Germany Out of Recession; Roubini: It Won't Work

BMW, Daimler and Audi announced measures surprising to many: they will expand their factories to comply with record orders. Two years after the height of the worst economic crisis since the Hitler era, Germany is already showing clear signs that the crisis has been left in the past.

After registering its highest GDP growth since reunification in 1991, yesterday private sector confidecne showed highest increase ever recorded. Exports to emerging countries and the return of domestic consumption are driving the German economy.

However it also reveals a darker side of Europe: the increasingly existence of one bloc operating at two speeds.

Survey of 7000 entrepreneurs made by Munich Ifo Institute found that private sector confidence reached its highest point in two decades. The increase in domestic consumption and exports are mainly the reasons for the resumption.

In 2010, the German economy grew 3.6%, well ahead of all the rest of the EU. For 2011, Berlin has come to revise upward the growth of its economy, with a projection of 2.3%. Neither the high prices of commodities and minerals appear to be a problem. The government now believes it will reach a goal of deficit reduction before the deadline stipulated by the EU in 2013.

According to German economists, the explanation for the good performance is simple. The model is based on exports and since imports from emerging markets is growing, the German economy can withstand the crsiis. Unemployment stood at 7% and allowed domestic consumption to strengthened.

"The German economy began the year with great vigor," said Ifo's president Hans-Werner Sinn. The result made the Frankfurt stock climb to highest level in two and half years. Across Europe, stock markets also reacted positively.

Axel Weber, president of BC German, says the country's economy "is benefiting considerably from the global economic recovery, especially the emerging Asian markets,"demand is once again giving fundamental impulse".

In the German press, the news is quite different from that seen a year ago, when layoffs were being announced in Europe and companies closing their doors. Audi, for example, just announced its biggest expansion in its history two weeks ago. The company plans to hire 1,200 workers and invest 11.6 billion in four years. It does not hide the fact that it wants to sell 1 million cars in China alone by 2014.

The Two Europes
But if the growth of Germany is seen as a relief to many in Europe, the expansion also opened up a reality that the EU is reluctant to speak of: the existence of two Europes. If Germany grows, countries like Ireland, Greece, Portugal, Spain and Italy continue to suffer.

The rate of unemployment in Spain, for example, is three times higher than in Germany.

In the euro area, the projection is that the growth of economies will be only 1.5% in 2011, an average performance thanks to the high German numbers.

The difference is so great that European commentators are alerting the Germans to avoid celebrating the recovery to not make the other partners of the bloc even more angrier. Berlin was even called "arrogant" this week by European politicians.

To governments of countries facing deep crises, this disparity between an export-driven Germany and their economies everyday less competitive is what is threatening Europe. For years, the positive trade balance in Germany was guaranteed by the arrival of Spanish, Greek and Irish, now heavily indebted.

Roubini: It will not work

In an interview with German magazine Der Spiegle, economist Nouriel Roubini also warned that the growth strategy of Berlin "will not work in the medium term." "This model will not work, not for Germany and not for Europe," said the economist, who accuses Berlin of having deepened the crisis of its neighbors

With material from O Estado de Sao Paulo.

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