Brussels – The eurozone now has a problem, and it’s called Germany. At the ECB, there is growing concern for the euro area’s biggest economy and what it entails for the Euroland performance. Fears emerged at the last meeting of the central bank’s Governing Council, when they opted to reduce interest rates, as minutes of the September 12 meeting show.
In broader terms, there is the belief in the Eurotower that the situation is positive overall: inflation is falling, in terms of the employment rate, the labor market remains strong, and excluding uncertainties related to geopolitical tensions, “a recession is unlikely.” However, there is a ‘but’. At the meeting, the ECB board acknowledged that “weak growth in the largest euro area economy, in particular, was dragging down euro area growth.“
Germany is not explicitly named, but the “largest economy in the euro area” automatically refers to the Federal Republic. There is no doubt that the brake on Europe’s economic engine risks triggering domino effects on all other economies, starting with Italy, which is heavily dependent on German performance, especially in terms of components. Not to mention exports: if orders stop, industrial demand inevitably suffers.
The less optimistic considerations of the ECB highlight the German secondary sector “With the highly interconnected industrial sector in the euro area’s largest economy suffering from a prolonged slump,” according to the minutes. Once again, the emphasis is on Germany’s difficulties, and the consideration of the European Central Bank’s Governing Council members is that “while part of the weakness was likely to be cyclical, this economy was facing significant structural challenges.”
