What Germans Think About the Euro Crisis

Yesterday, the financial headlines in Germany were, one after the other:

  • "Bundesbank tops the government's growth forecasts," predicting 3.6% growth in GDP this year, the highest since the reunification of East and West Germany.
  • "Christmas holidays cancelled due to car boom," as BMW, Audi, and VW reduce staff holidays to meet staggering orders, with record export orders expected for 2011.
  • "Germany will be the economic powerhouse of Europe" runs another headline. If you thought it already was, apparently it's just going to get better.

Aren't the Germans aware of the euro problem then? Let's ask them ...

It's sausage to me
My friends here in Germany, where I live, are sanguine.

Most Germans barely even talked about a dip, let alone a double one. The finance crisis was a dinner-table topic for a short time only, during its depths in 2009, unless you were one of the relative few who was and still is directly affected.

German citizens on the dole fell below 3 million this autumn, for the first time since the beginning of the 1990s, and now 41 million people are employed, more than ever before in Germany.

While Germans aren't happy with bailouts, the euro problems seem quite far away to most individuals, who are getting richer. 

As the Germans say (they really do), "It's sausage to me," meaning it doesn't matter to them.

What our German brethren think
German investors are just a slightly different story. Being somewhat more interested in such affairs, they have taken a more balanced view of the euro. 

However, their opinions are still being heavily influenced by repeated articles about the current success of their economy, which is being boosted by a weak euro -- compliments of Ireland, Greece, et al. -- and by increasing consumer spending. 

Business investment is also on the up, and business confidence is at its highest since post-reunification records began in 1991, says Munich's Ifo Institute.

The government is desperate to transfer some of the costs of bailouts to bond investors, which currently are taking almost none of the risk. German Chancellor Angela Merkel has said she doesn't want such a "land of plenty."

Nevertheless, the DAX has gained around 12% compared with a fall of about 7% in the euro Stoxx 50, roughly 30% of which is made up of banks. 

The investor's natural instinct is to feel safer when prices are higher (even though higher means riskier), which may explain why most of the comments I've read on German investment websites have been upbeat.

If it is fleeing investor confidence that is causing the euro problems in general, it may be German confidence will be just as contagious, and this could prove to be the savior of the euro.

The German school of economics
Thomas Straubhaar, director of the Hamburg World Economics Institute, wrote an upbeat case for Germany, if not the euro, in the German edition of Focus magazine. 

"Germany experiences a new economic miracle," he wrote. "Unlike the U.K. and Ireland, which have shifted to services and especially finance and capital markets, Germany has remained an industrial nation. Mercifully."

He declares that it is small- to medium-sized German businesses using innovative products that combine finance and industry that is "the real cause of the gratifying German economic miracle 2.0."

Political will for bailouts to go on and on
So long as the economy and the German people aren't suffering, complaints about bailouts won't exceed the German self-satisfaction expressed by Straubhaar. 

The sense I get here is that the German people like the convenience of the euro when visiting their neighbors. What's more, they see themselves as its guardian: "guardian of the currency" being a very German expression, according to Stefan Kornelius in the Sueddeutsche Zeitung. 

Undoubtedly, inside the eurozone, this powerhouse also benefits from a captive market for its exports.

Senior politicians have made it very clear that they support the euro and bailouts. Finance minister Wolfgang Schauble recently spoke in favor of supporting Ireland: "Our common currency is at stake," and Merkel said: "If the euro fails then Europe fails." 

German politicians have therefore nailed their colors to the mast or, as Sir Humphrey in Yes, Minister said, they have nailed their trousers to the mast, so now they can't climb down.

Even so, there is clearly a big opposition to bailouts. That German taxpayers are paying for the mistakes of banks (Irish or otherwise) and that they're bailing out speculators (including banks) and work-shy tax evaders (banks and the Greeks) is a significant political problem.

Yet richer nations can better afford the luxury of altruism and many Germans feel this responsibility. An uprising against bailouts appears a long way off. Investors have benefited from them, and workers still have their jobs and incomes rising above inflation. 

The German folk won't revolt while the economy is booming.

Hence, I think the political will to support euro countries with bailouts will continue, and it will do so for some time after the people's acceptance of their role as euro guardians wanes, because politicians will refuse to admit defeat. If it comes to a choice between printing money and leaving the euro, I suspect printing money will be the politically most acceptable option.

What German commentators are saying
I asked Volkery Carsten, a commentator for German news magazine Spiegel, for his views and it is reasonably close to the above:

"The willingness of the German public to bail out other European states is very low. There is a widespread perception that paying for the mistakes of profligate foreign governments is unfair on the German taxpayer. 

"Whenever Merkel takes a hard line in Brussels, she is celebrated in the German press. Her insistence on a permanent EU crisis mechanism, in which private bondholders are responsible for eventual losses, is being lauded as the only right way, even in liberal papers.

"On the other hand, there is by now a strong support in Germany for the euro as a currency. Germans have come to appreciate the advantages of the common currency. But they like to see their currency strong. There is a certain pride in being the ultimate guardian of the currency. This comes with a certain self-righteousness about having a right to a bigger say over eurozone policy than, say, Greece or even Spain. 

"As soon as there is criticism of German bullying in Brussels, it is countered with the refrain: The ones who pay, decide."

More on the markets:

This article has been adapted from our sister site across the pond, Fool U.K.

Neil Faulkner owns no shares of any companies mentioned. The Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 07, 2010, at 9:53 AM, Momentum21 wrote:

    An interesting perspective that doesn't get much play around these parts...

  • Report this Comment On December 07, 2010, at 1:57 PM, go4buffs wrote:

    Es ist mir Wurst! (It's sausage to me). Yes, Germans often use this saying when they are indifferent about something.

    As an American Expat in Germany for almost 8 years, I would underly the reported optimism when you take a look at the 'stereotypical negative German'.

    The German pysche, if you allow me to stereotype a bit, is extremely conservative and is also a beliver of a 'Social Market Economy' (instead of pure Capitalism).

    This extremely conservative nature keeps most Germans out of the capital / stock markets (as compared to their similar professional American counterparts. It also keeps the headlines relatively negative. Even when times are good, the headlines tend to focus on arguments on why it will be bad soon.

    Currently, this is not the case...the overwhelming news is extremely positive. Companies are hiring, raising salaries (before the yearly union negotiations), there is an 8+ month wait for a new Audi that just rolled out of development, etc.

    This speaks for a booming economy...and things here are good - but not much different when times were bad 2 years ago. Yes, there were some closures, and many Germans had to reduce their hours (the German 'social' alternative to layoffs...the employee works 25 hours instead of 35 or 40, gets paid less, but the government picks up this difference for a year or so instead of laying folks off), but all in all, the 'quality' of life seems to be very comparable.

    The headlines have just changed...which definitely helps the moral of a country, and helps the unions during labor negotiations.

  • Report this Comment On December 28, 2010, at 7:30 AM, Johnexo wrote:

    The problem with the EU, and especially PIGS is that they were spending too much even before the depression. Greece's debt didn't suddenly magically appear as a result of a recession. It was already there, it just became fatal when the economy went south. The problem for the EU isn't just an economic downturn. If that was the only problem, some stimulus spending could arguably be the answer. The problem for the EU is debt combined with a flat economy.

  • Report this Comment On January 04, 2011, at 12:12 AM, jharna24 wrote:

    I have made money since the market's last low in the fall of 2008. Do these officials rebalance their portfolio from time to time? Do they use fundamental and technical analysis to picks stocks, ETFs, mutual funds and/or bonds or just throw darts at a list on the wall? Believe me, if these people have lost money over the last two years, they don't know what they're doing, they're thieves, or both.

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