Entering Recession


It is now official. Even though the trend has been obvious to the most blind of pundits for some time, it now cannot be denied. Judged by all the economic indicators, Germany is now officially in recession.

This is not good news for Chancellor Gerhard Schröder, who spun a contrary story in his election campaign last year. It was only by the good graces and popularity of his Green Party coalition partner, Joschka Fischer, that he scraped back into power.

Now the truth is not only out, but it’s official. By the end of June, the German economy had produced six consecutive months of reduced growth, the technical definition of recession. The official expectation is zero growth for this year.

Belatedly and not without resistance even from within his own party ranks, Schröder has attempted a degree of economic reform. He knows that his future political career is at stake, so is prepared to mount more desperate moves than he would normally. The chancellor has proposed cuts in government spending, a revision of the tax system and deregulation of Germany’s tightly controlled labor market. Industrial unrest is in prospect this winter as the full effect of these reforms starts to bite. Analysts state that it will take at least 12 months for these reforms to have a positive bearing on the German economy.

One of the main headaches Germany has faced during Schröder’s administration has been endemic unemployment. The official national figure is 10 percent, but regional figures, particularly in eastern Germany, are double this rate.

With the German economy traditionally being the engine of the European Union federal economy, Germany’s past three years of economic slough has held back the collective growth of the eurozone.

This magazine has constantly warned of the danger of a socially tense Germany. Historically, an economically and socially disrupted Germany has proved to be a dangerously unpredictable Germany. It’s times like these that ripen opportunities for the rise of demagogues. The last time Germany experienced national economic woes, it had fatal results for millions. It would pay to watch Germany this winter to see if a season of discontent results in preparing the ground for a repetition of history.