Investors have had a week to remember across the world, with U.S. indexes hitting all-time highs and other markets soaring to big gains. Across the Atlantic in Germany, the DAX (DAXINDICES: ^DAX ) picked up nearly 4.3% to inject some optimism into a sluggish 2013 for German investors. Yet even with the market's jump this week, Europe's problems linger on -- and troubling news from China could hurt Germany's leading automakers in the future. Let's check out what you need to know about the latest from Europe's top economy.
Consensus lacking in the eurozone
Unsurprisingly, the European Union's latest effort to reach common ground on how to deal with troubled banks in the future has seen Germany and other leading nations split. The EU proposed this week to transfer the authority to close or bail out big banks from individual nations to the European Commission. This authority has been inadvertently responsible for several of the crises in the region, including Ireland's debt-fueled collapse. German leaders have balked at the proposal's plan to remove sovereign states' authority, however, and a lack of consensus on the issue will only prolong the European economy's stagnancy and keep investors in a cautious limbo.
Of course, it's not Germany that's in trouble among leading European economies. The country's still the safest bet for investors in the eurozone, with ratings agency Standard & Poor's affirming Germany's "AAA" sovereign-debt rating on Friday. S&P praised Berlin's commitment to fiscal responsibility and cited the country's competitiveness in its appraisal -- key measures that should keep investors confident in German markets' ability to improve despite the DAX's lackluster year-to-date performance.
However, that doesn't mean every stock in Germany is bound to perform well. Automakers have captured worldwide attention with the industry's improvement recently, and several of Germany's best have performed admirably overseas. Volkswagen (NASDAQOTH: VLKAY ) is the second-largest foreign automaker in China, the largest auto market in the world, behind only General Motors. Luxury automaker BMW (NASDAQOTH: BAMXY ) has also surged in that market and expects China to surpass the U.S. as its largest customer this year. Before investors get too excited, however, China has its own troubles that could slow down German carmakers' ambitions in the growing country.
China's infrastructure problems have resulted in colossal, record-setting traffic jams in recent years, and lack of appropriate environmental regulation has resulted in choking pollution in some major cities. In response, Beijing is considering limiting car sales and ownership in the country. Chinese paper China Daily has reported that such limitations could restrict car sales in the country by up to 400,000 vehicles -- about 2% of domestic sales. That may not sound like much, but for a market that has grown to unparalleled importance for German auto firms such as BMW and VW, that's a tough blow to growth aims, particularly as the European market continues to slump.
German companies aren't the only ones with worries in Europe's top economy. Leading online retailer Amazon (NASDAQ: AMZN ) has come under scrutiny after the company's German unit only paid 3 million euros in in taxes in 2012 -- on sales of more than $8.7 billion in the country. It's Amazon's largest market after the U.S., and while Germany's resistance to the European recession has kept Amazon shareholders happy, German lawmakers may be taking a close look at how Amazon's European business pays its Luxembourg-based holding company and thus avoids a significant tax burden. It's doubtful that legislators will inflict a heavy blow on the retailer, but a bigger tax burden in the future could hamper Amazon's earnings in Europe.
Is a recovery on the way?
European growth has remained elusive even as Germany has staved off the worst of the region's fiscal crisis. The DAX's weak gains for the year are a perfect example of that. With European investors wondering whether they're missing out on gains, take heart: Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!