“Germany Set to Suffer Record Deficit,” headlined the Financial Times on May 14. The next day, a rash of negative headlines on Germany’s economy splashed across many media outlets.

“German Economy Hits Bottom,” ran the headline on abc News May 15, followed by the quip, “Germany’s gdp the lowest since the country’s foundation.” The same day, the Financial Times published a lead article under the headline, “Eurozone GDP falls 2.5% as Germany Shrinks.” Continuing the theme, EUobserver headlined “EU Suffers Record Drop in GDP.” The Economist chimed in with its observation on the euro-area economy falling “Into a Deep Hole.” Then on May 16, the Times ran the dramatic headline, “Record Fall in GDP Sees Germany Take Over as the ‘Sick Man of Europe.’”

On the broader front, the eurozone economy is in deep trouble. Some pundits are already stating that Europe is going to experience a more disastrous effect on its economy than the United States in the wake of the subprime mortgage meltdown. Others are predicting the beginning of the end for the European Union. The common thread through most analyses of the EU’s current crisis is the effect of the sudden stalling of Europe’s powerhouse economy, that of the EU’s most powerful member, Germany.

As our columnist Brad Macdonald commented recently, so many mixed signals have been coming from observers of the German economy since it first showed signs of the effects of the global financial and economic crisis that it’s often been difficult to gain a true picture of the true state of the situation. Now, with the release of last week’s figures, it does seem apparent that Germany is in for a tough time, at least in the short term, as it prepares to suffer the inevitable shedding of jobs with German industry downsizing to weather the storm. In the meantime, German politicians argue over ways to tackle the huge stumbling blocks that face any move to intervene in the economy: the systemic inflexibility within Germany’s labor market, and its social security and banking systems. All this in a crucial election year.

Only a few weeks ago, Newsweek reported that the good times were still rolling for the German populace.

It may well be that, far from continuing to react in the face of global crisis as though the good times are still rolling, the average German is about to hurt.

With the publishing of the latest negative data on the German economy, the coalition government of Chancellor Angela Merkel faces its greatest crisis since her election almost eight years ago. This is not going to be a good year for either the upcoming European parliamentary elections slated for June, or for the September German federal elections. All candidates for both elections must now have as the chief plank in their campaigns the state of the economy and how to fix it. That will be the issue with which the average European identifies when casting his or her vote for the EU parliamentary representative of their choice next month, and, certainly at this juncture, it is likely to be the issue at the forefront of the mind of the German voter in September.

Already the stage is set for a dramatic swing to the right in the European Parliament elections. The economic crisis in Europe coinciding with a right-wing swing in the electorate harkens back to similar times 80 years ago. What may well add to this sense of history about to repeat itself in Europe, and in particular in Germany, are reports of the prospect of the eurozone—with Germany at its center—treading on the brink of a deflationary spiral.

Last week, the Economist observed, “Firms cannot take losses forever without shedding jobs. Unemployment in Germany and elsewhere will begin to pick up quickly this year and carry on in 2010. Even where cutting jobs is costly, it is unavoidable given the scale of the fall in gdp. The European Central Bank seems to have hunkered down for a long recession. It is now prepared to offer banks unlimited loans for 1 percent for up to 12 months, and that horizon may even be extended. When you have fallen so far, it is a long way back out” (May 15).

A month ago, Stratfor considered the prospect of deflation in Europe (April 9):

The German Federal Statistics Office reported April 9 that the consumer price index (cpi) rose 0.5 percent in March, compared to March 2008 figures, much slower than the 1 percent increase in February compared to February 2008. This indicates the lowest inflation in Germany since July 1999. Moreover, the cpi dropped 0.1 percent in March compared to February, in contrast to a 0.6 percent rise from January to February.One month of price decreases does not signal a sustained deflation, but it did start ringing alarm bells throughout Europe. Germany is the largest economy in Europe, and with consumer prices in Spain illustrating a similar decline in March, fears are growing that Europe as a whole could be entering a deflationary spiral. …As unemployment continues to rise in Germany (and throughout Europe), and as German industrial production and exports continue to slide, Europe may be on the cusp of a spiral.

Why is such a prospect a point of concern?

Those with a keen sense of history remember the Weimar Republic and compare today’s scenario in Germany with that of the 1920s. Many variables at play today make the comparison an inexact fit. Yet the real fear in an election year, where the prime candidate, Frank-Walter Steinmeier, is playing the scare card, is that if public opinion on the economy turns negative, Steinmeier may face a self-fulfilling prophecy with disastrous results for both the German economy coupled with a disastrous outcome to the September election.

Stratfor astutely has considered this deflationary scenario. “Deflationary spirals are particularly worrisome because they are caused by the widespread belief that things are not going to get better. … [D]eflation is largely a psychological phenomenon, caused by a general anticipation that prices will decline further and that economic conditions warrant a larger-than-usual cash buffer. … Thus, a deflationary spiral is self-reinforcing and can be reversed only through a reduction in the desire to hold large cash balances” (ibid.).

The next four months will be crucial in determining the future course of both the EU and Germany. Much now hinges on how Chancellor Merkel’s shaky coalition government handles Europe’s key economy. Her political opponents, which in this year’s election race include her own coalition partners—especially Germany’s vice chancellor and foreign minister, Frank-Walter Steinmeier—will be ready to stab Merkel in the back the moment she puts a foot wrong. On the main issue of the economy, Merkel is currently dragging her feet. But the latest set of figures on the German economy are going to mount considerable pressure on the chancellor to take some major political risks to at least be seen to be attempting to do something to put things right for the new “sick man of Europe.”

As we have previously pointed out, there is one strong man who appears to be biding his time, politically, who once declined the job of minister for the economy in Chancellor Merkel’s government. Did Edmund Stoiber have the foresight to see that portfolio as a poisoned chalice, given the deep-seated systemic economic problems that hamstrung Gerhard Schröder when he was chancellor, and now threaten to end Chancellor Merkel’s political career?

What did Stoiber really have in mind when he recently blamed the global economic crisis on the “Anglo-American” system? What did he have in mind when he declared that he was convinced that a “totally new economic system” would emerge from the present global crisis? Was this Bavarian, mentored by German strongman Franz Josef Strauss with his “Grand Design” for Germany and Europe, indeed contemplating the possibility that he, who once ran the most successful state economy in Germany, might have a leading part in implementing that new global system of economy?

To those who have followed the rise of Germany and the European Union, especially those who studied Herbert Armstrong’s writings on the subject, these are intriguing questions that may well be answered in the months to come.

Watch Germany during this crucial election year. Watch that nation very closely. We plan to report to you direct from Berlin during this important election in September. The future of Europe is, as it always has been in the past, closely linked to the reaction of Germany in this time of unprecedented crisis. This is the greatest financial and economic crisis to descend on Germany since Weimar. How will Germany react?

Your Bible prophesies the outcome, believe it or not. If you are willing to accept our challenge to prove it, then read and study our publications Germany and the Holy Roman Empire, Daniel: Unsealed at Last! and Nahum: An End-Time Prophecy for Germany.

Again we say, WATCH GERMANY!