The German economy is running out of options

It’s crunch time for Germany and the European Central Bank, or so posits Ryan Bridges, an analyst at Geopolitical Futures.

As ne notes, for close to a decade, the ECB has been cutting interest rates while urging member states that have funds for fiscal stimulus (read: Germany) to use them. The ECB grew increasingly desperate to stimulate the eurozone economy and raise inflation, and in 2015, it finally introduced its asset purchases program. It continued to urge the German government to act in order to support growth throughout the bloc, and Germany continued to refuse. From Berlin, things didn’t look so bad. The ECB’s easy money kept the value of the euro down, which gave a boost to German exports and the German budget, practically without Berlin having to lift a finger. Until the second half of 2018, the German economy was riding high, even as German politicians and bankers lamented the effect that the ECB’s low interest rates were having on German savers and bank profits.

But now, Germany’s economy is slowing. China isn’t growing as quickly as before, while Brexit and the U.S.-China trade war (not to mention the threat of U.S. tariffs on European goods) have hurt business and consumer confidence. The Bundesbank, Germany’s central bank, wrote in its August monthly report that the economy was likely to slip into a technical recession in the third quarter. After all this time, the ECB’s dovish policies, intended to prop up struggling Southern European economies, are finally starting to make sense for the eurozone’s largest economy, too. There are just two problems: First, Germany’s monetary hawks, of which there are many, don’t yet see things that way. Second and more important, the ECB’s options for stimulus are almost entirely depleted. There’s a bit more that can be done, but not without stretching the limits of European Union law and agitating the already testy Germans. If the German economy is going to get a boost, it’ll need to come from within.

 

read the fascinating article HERE