The German Economy Caves, And Eurozone Bailouts Take On New Dimension

Wolf Richter's picture

Wolf Richter

Last year, German exports rode to a new record, jobs were being created in massive numbers, real wages rose, housing and real estate boomed, the federal budget was nearly balanced, and consumers felt good and spent money. There were moments in 2012 that made people dream of a repeat performance—despite the havoc that the Eurozone debt crisis has been wreaking.

Whatever was happening, Germany would be able to make up for declining exports to the Eurozone with strong exports to Asia and the US. Internal demand would remain solid. And this illusion of durable economic strength and fiscal virtue has tainted the discussion about saving the euro, bailing out debt-sinner countries in return for austerity measures, and keeping the European Central Bank in check.

But now the crisis has moved from Germany’s front yard to its doorstep and is about to enter its living room. Beer sales, for example. That the German Federal Statistical Office tracks them shows just how crucial a staple beer is. Alas, beer sales to customers in Germany dropped 2.3% in the first half over the same period last year, and ominously, exports dropped 2.9% [for the worldwide beer phenomenon, beer consumption per capita, and where the growth really is, read.... Beer, A Reflection Of The World Economy?]

Auto sales got clobbered in July, dropping by 5% from July last year, and by 16.5% from June, knocking year-to-date sales, which had been holding up well, into the red (-0.1%). Auto sales have been a fiasco in the Eurozone for a while. In Greece, where they’d been plummeting for years, they plummeted again in the first half, by 41.3%! In Italy, by 19.7%, in France by 14.4%, in Belgium by 12.7%. But until July, Germany had been spared. No more. Of the big brands, only Audi (Volkswagen) was up (+14.3%). The others got hammered: Opel (GM) -18.6%, BMW, Mini -17.9 %, Mercedes -14.6 %, and Ford -4.4%. Even VW, market-share leader and on a phenomenal worldwide roll, was down 1.5%.

Retail sales, which had also been doing very well, stalled. And the closely watched Ifo index for July deteriorated so sharply that Hans-Werner Sinn, President of the Ifo Institute, admitted, “The euro crisis is having an increasingly negative impact on the German economy.”

Germany’s manufacturing industry is now in a rout. Output and new orders dove in July at a rate not seen since April 2009, the depth of the great recession. It was the 4th month in a row of lower production volumes, and the 13th months in a row (!) of declining new orders—a terror for future production. The overall PMI index crashed to the lowest level since June 2009. Exports were hardest hit, particularly to Western Europe, Asia, and the US, the three largest markets in the world! The decline in exports was steepest since May 2009. And there is talk of “job shedding.”

These trends harken back to the financial crisis, when export orders fell off a cliff, causing GDP to plunge 2.1% in the fourth quarter of 2008 and a horrid 3.8% in the first quarter of 2009. Annualized, those two quarters amounted to a double-digit decline in GDP—the worst two quarters in the history of the Federal Republic. The German economy lives and dies by its exports.

Yet my contacts in Germany remain “relaxed.” There’s no malaise or panic. “In the countryside, everything goes on regardless,” wrote one of them. Restaurants are doing well. People have jobs, wages are going up. Inflation has backed off. The recent feeling of optimism, after years of pessimism, is still hanging in the air. People are bidding up rental properties and plowing their savings into brick and mortar. Well-educated Greeks and Spaniards are heading Germany in search of work. For them, it’s nirvana. The German government, through various organizations, is trying to rope in its expats in Silicon Valley and lure them back with special incentives to fill the shortage of qualified talent at home. Clearly, the numbers I mentioned haven’t yet made their way into the perception of day-to-day reality.

The public debate about bailing out Spain or Greece, and about Draghi’s plan to go on a bond-buying binge, is taking place to the backdrop of a sweetly humming economy. But the ear-piercing screech of the German export machinery as it shifts gears will change the debate—and the political will. German exporters, a super-powerful lobby, will push for all-out “do-whatever-it-takes” flooding of the Eurozone with money. On the other hand, if prospects of layoffs or forced part-time work (Kurzarbeit) are hounding consumers, their appetite for bailing out southern countries will fade altogether—and so will Germany’s ability to do so.

Meanwhile, Eurozone heads of state, top politicians, unelected kingpins, and bureaucratic honchos threatened everyone in sight with the demise of the euro. And then Italian Prime Minister Mario Monti went on attack. An ‘attack on democracy.’ Read.... Escalation of the Extortion Racket: Now It’s ‘The Dissolution Of Europe’ Not Just the Eurozone.

Argentina, an alternative path for indebted Eurozone countries? Not so fast! Since late July, a new set of words has been showing up in articles about the economy. Shrinks. Slows. Stagflation. These chilling terms describe the consequences of what some nasty economic indicators have in store. Read.... Argentina: The Big Shrink, by Bianca Fernet.

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Joseph Jones's picture

My company makes and sells a sum total one item.  Sales to Germany over the last month resulted in the largest quantity of product sold for the same time period.  Go figure.  It's nice selling product with no real competition. 


steve from virginia's picture




Death ride of the automobile industry.


Couldn't happen to a more deserving bunch of scoundrels. Soon enough, all of them will go ... tits up.

Gavrikon's picture

"Alas, beer sales to customers in Germany dropped 2.3%"

Sorry.  I've been trying to watch my weight a little better. 

Jim B's picture

Germany the rock of Gibraltar in Europe has a debt to GDP of 140%. Germany is the rock?  The whole world is a debt Ponzi....



Mountainview's picture

Debt to GDP: Please same measure for all otherwise US Debt/GDP 300%...

Mad Mad Woman's picture

Did Merkel & Germany honestly think that they would be immune to the global slowdown?   What fools!

Snakeeyes's picture

But it caved in the same way that Italian industrial production caved, almost together.

Here come Draghi!

Haager's picture

Italian GDP YoY and QoQ below expectations, below previous, and German GDP the same. But: Italian 10y <6% and stocks stable or up. Euro stable 1.241x, bund future down.

Now, I'm puzzled.

silverdragon's picture

Paper silver at 28

Nachdenken's picture

The German psyche reacts late. Perhaps this might hurry things a bit.

The Socialist Party (SPD) chief Sigmar Gabriel wants Eurozone debt to be jointly guaranteed by all Eurozone countries - overlooks yet again that guarantors are taxpayers, and savers, in the north european countries. 

Would you want your taxes and your savings to go to pay someone elses debt ?

falak pema's picture

...The German psyche reacts late. Perhaps this might hurry things a bit...

You might add that Mutti Merkel is fighting a battle with one hand tied behind her back; as the Draghi Squid machine is relentless in centralising the social debt in its books to save the private Caymanista bankster cabal, just like the FED, the BoJ and BOE have done in their respective lands.

That is the sinister scenario  now emerging, alike that of the 1930s, which will end as it did then; placing its damning epitaph on the whole financialised capitalism cabal of Pax Americana when it implodes, just like Pax Britannica did in yester years : "here lie the dregs of the new roman empire that suffocated under its own delusioned hubris and debt creating machine, all fed on derivative scamming generated by the diabolical invention of the age : the HFT algo pump of super computer dumping, new Pandora's box of the infernal fiat machine engine age."

Never underestimate how deep a hole man can dig for himself, precisely when he towers like a colossus over the walls of impregnable Troy reduced to flames and ruin! 

In the current context TRoy is the ever shrinking remains of the democratic legacy of "we the people" age, now jeopardised by the rise of global neo-feudalism. The new power caste, house of Atrides, symbols of our collective regression like the barbarians and Mongols of old. 

i-dog's picture

LOL ... What could make anyone think that taxpayers and savers will be consulted?


When leaving the Autobahn follow the yellow brick road...

Coldfire's picture

The two largest German banks have begun laying off staff for the first time in years. No economy is an island.

sun tzu's picture

The natives on Papua New Guinea don't give a flying fuck

sablya's picture

These things proceed so slowly that no one notices what is happening.  One cannot even be sure that anything is happening.  As far as we can tell, things are going great.  I'm starting to think it is better to be blissfully unaware of what is happening.  Thinking about the looming crisis doesn't really do any good at all.  It is unstoppable, it is untradeable, preparation is probably useless because whatever comes afterward is unknowable.  Aside from building a giant underground bunker filled with food and weapons, what's the point of it all??

Raymond Reason's picture

What we can predict is a loss of faith in government, a false God.

falak pema's picture

You have a new God waiting in the aisles to take over that mantle : The global Oligarchy. 

You will only wake up to THAT reality when the so called false God will have truly disappeared!

Your only true freedom is that of serf; Charybdis of Statism and Scylla of neo-feudalism are both symbols of our inability to steer a true course. 

Offthebeach's picture

Serf, slave is a tough product sell. Even the Soviet elite knew to call their s schlubs. ' hero's of the revolution " even if the were slapping brake pads on the 2nd shift at a Lada assembly plant.
No, we need Disney for today's child like. Muppets, Skittles, unicorns, evev the NFL for now, fills the void...but a new "vision" needs to be produced so that the dolts know their place, as crop to be harvested for all their lives.

Gavrikon's picture

Sounds sorta apocalyptic to me . . .

Mark o' da Beast, anyone?

falak pema's picture

beauty and the beast; don't forget to play Wagner's Walkyrie like in Apocalypse now! 

Savyindallas's picture

You will probably need that giant bunker filled with food and weapons -stock up with plenty of beer -weed will be valuable also. Keep your wife in shape also  -you may need to trade her in for a few cases of beer and some weed when your personal stash runs out. My wife is a professional consumer and complainer.  But to others who don't know her -she made be good for a few cases of beer and perhaps a good mule.

Gavrikon's picture

I got this truck for my wife.  It was a good deal.

Bill D. Cat's picture

I think you meant " good trade " .


My version is " Got a bottle of wine for my wife . " .............. "Oh , good trade " .

GMadScientist's picture

She's already good for a mule.

sablya's picture

Yeah, but as an "awakened" frog there is nowhere to jump to.  Where is "outside the pot"?  

GMadScientist's picture

Why don't we work on lifting the lid first.


sun tzu's picture

Out of the pot and into the fire

IronShield's picture

"Where is outside the pot?"

Whoa...  That is some heavy metaphysical $hit amigo...

Arnold Ziffel's picture

EU consumer spending is collapsing. They simply cannot keep up with us hardy, ever-ready, never stop running, Americans !



El Oregonian's picture

In a salute to fine German Beer and German sensibilities:

Letzte Runde!!!!

Nachdenken's picture

Germans drinking less beer, buying fewer cars, banks layoff employees - they ought to start drinking seriously to turn things round.

GMadScientist's picture

It's all good; they have a great workshare program. They'll take turns telling the Greeks to pay their debts.

bigwavedave's picture

Ze Germans will want to drive the Euro down closer to parity with the dollar while not (yet) printing. Of course, the printing will come. But later. Unless Europe gangs up on them or bombs the Rheinland again, Ze Germans will become a doubled down force in Euroland

sunny's picture

I just don't see the problem.  Simply hire Bernanke as a special financial adviser and he'll teach the nice folks in euroland how to print.  Lots more currency always solves the problems, no?


Offthebeach's picture

Don't worry, Turbo Timmah's been to Europe. Everything is fine.

q99x2's picture

If a country has not had its infrastructure dismantled by the corporatists and banksters it stand a chance of survival although what goes on globally will weigh on things. Germany is one of those countries.

I wonder if AA participation is on the rise in Germany. Sure is big here in Southern CA.

Sudden Debt's picture

You guys have different criteria in America than we have in Europe.

According to Amercian standards, everybody in Europe is a alcoholic.
At lunch we have 3 glasses of wine and after work 1 or 2 beers and another 2 glasses of wine with supper.

Why do you think Europeans are more happy than Americans?

Why do you think Europeans take less anti depressants than Americans?

Why do you think Europeans aren't allowed to buy guns?

Why do you think Europeans have more kids on average than Americans?

GMadScientist's picture

Too in-bred ignant to now precisely how truly fucked they are?


Mad Mad Woman's picture

When you're happy and you know it clap your hands...............

Ghordius's picture

LOL - I just stumbled three months ago on a report citing that half of europe is depressive and needs urgent help. Flabbergasted, I looked a bit further and found out that the research was funded by a giant US drug company.

One fact you forgot: we europeans are statistically poorer on average than Americans.

Sudden Debt's picture

Fraud is very common here :)

Official and unofficial wealth is like 2 galaxy's away from each other :)

Take Italy for example: on paper they are broke, in real terms they're pretty rich.

Same over here. Every year the government launches a 2 month tax free moment where people can put unofficial money into the banks without question. Needles to say nobody really does that.

We have a tax system that taxes 55% of our income. What do you think people do?

Ghordius's picture

Double LOL - and we both read on ZH how some theorize about black markets and submerged, non-official economies. But Belgium and Italy are just the extremes, the Iberians, the French, the Austrian and yes! the Germans are not that far from it...

Last time I was in Germany (two weeks ago) overheard this conversation: "...and then I noticed how well it looked and it costed € 50'000. I went there and said to the owner: I'm an entrepreneur and I can send my people to haul it in my garden. And he replied: oh, ok, € 5'000 on Sunday..". I don't need to underline to you that of course it was in cash.

Scotland is not far away, too, I remember when the official estimate was of 25% of the economy being submerged. That was in the '80s, and I understand that those estimates are not done anymore - they offend sensibilities.

The only reason why I have ever bought some arms officially is so that I can hide my black markets ones among them...

GMadScientist's picture

Are you counting people shooting gear or strictly non-junkie "GBP" (gross black-market product)?

Reven's picture

Please cite the greater European birth rates.  That's totally backward.

Peter Pan's picture

I think he is referring to the birth rate of muslims in Europe.