The German economic miracle no longer exists

Professor Wieland mentioned inflation may spiral into double digits and warned that the most recent shock will probably be tougher to deal with than the pandemic, when the authorities may no less than unleash limitless financial and monetary firepower to stabilise the financial system.

This time stimulus dangers entrenching the inflationary dynamic and proving counter-productive.

“The European Central Bank will have to raise interest rates. It has no choice: we’re seeing a surge in inflationary expectations,” he informed Handelsblatt.

It’s a surreal scenario. The ECB remains to be conducting quantitative easing and holding charges at an historic low of minus 0.5 per cent, severely damaging the enterprise mannequin of the German financial savings and cooperative banks.

These present 90 per cent of whole credit score to the Mittelstand household corporations, as soon as the bedrock of the German Wirtschaftwunder, however at the moment are underneath mounting stress.

The nightmare state of affairs for German conservatives is unfolding earlier than their eyes.

“The euro has become the successor of the Italian lira, not the successor to the Deutschmark, just as we feared,” mentioned Professor Thomas Mayer, Deutsche Financial institution’s former chief economist and creator of Inflationsgespenst (The Ghost of Inflation).

“We were seeing echoes of the 1970s even before the war in Ukraine started. The ECB has been using models that do not work and has forgotten about the money supply: the Keynesian paradigm rules supreme,” he added.

The longer this protracted disaster continues, the extra it begins to appear to be a melancholy, with lasting structural and hysteresis. The final window is slowly closing earlier than the nation’s demographic decline begins in earnest.

“It has succumbed to pure fiscal dominance just like the Banca d’Italia in the 1970s when it was obliged to buy Italian government bonds.

Southern Europe is now so deeply indebted – including France – that the ECB cannot raise rates. It is completely boxed in. Of course, everybody will blame Putin and claim that none of this could have been foreseen,” Professor Mayer mentioned.

Otmar Issing, the ECB’s founding chief economist and a towering determine in German financial circles, mentioned the central financial institution had betrayed its stability mandate and should now chunk the bullet earlier than it’s too late.


“The war is no excuse to delay the exit from massive bond purchases. The ECB is going to pay the price for not heeding countless warnings and halting its ultra-expansive monetary policy long ago,” he mentioned.

Evercore ISI mentioned the ECB could should navigate the reefs by tightening into an financial slowdown whereas on the similar time making a “spread protection instrument” to guard Membership Med, which some would possibly name a euphemism for an unlawful financial bailout of bancrupt states.

The German Macroeconomic Coverage Institute warned this week that the warfare in Ukraine has prompted the restoration to stall, with danger of an unpredictable “cascade effect” by way of provide chains and monetary channels.

A full cut-off of Russian coal, fuel, and oil may slash development by 6 per cent of GDP, resulting in a deep recession.

Germany has but to get well from post-COVID provide disruptions, particularly the scarcity of semiconductor chips used within the automobile business. It’s now struggling a second hit from Ukraine, a producing supply of automobile parts and in addition to neon fuel wanted for chip manufacturing.

Germany’s famed car industry is facing headwinds.

Germany’s famed automobile business is dealing with headwinds.Credit score:Bloomberg

In contrast to France and the UK, Germany has not but recovered its pre-pandemic ranges of GDP.

The longer this protracted disaster continues, the extra it begins to appear to be a melancholy, with lasting structural and hysteresis. The final window is slowly closing earlier than the nation’s demographic decline begins in earnest.

The enormous differential in fuel and power costs between the US and Germany is hollowing out German industrial vegetation.


Chemical, fertiliser, metal, and metallurgy firms are both shifting output to US-based vegetation or shedding world market share altogether.

The strains are getting worse at a time when the German automobile business itself is grappling with the existential risk of electrical autos, which it uncared for for too lengthy.

Professor Wieland mentioned the talk in Berlin over whether or not a Russian power embargo can be pricey misses the higher level. Germany has no selection: it’s already in battle with Russia.

“You have to assume that Vladimir Putin will precipitate a supply freeze when it inflicts the most harm and is most advantageous for him. Ergo, we must put all levers in motion now to prepare for it,” he mentioned.

Telegraph, London

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