The eurozone has a problem with its fragile Greco-Roman-Iberian-Irish periphery. The periphery has a problem with its solid German centre.
The periphery needs a big, fast-growing, consumption-driven country to buy its exports. What it has is Germany: big, undoubtedly, but slow-growing and dependent on demand from foreigners.
In 2009, unfortunately, Americans and other big spenders went missing. The result was the worst economic contraction in Germany since the World War Two. Export volumes fell by almost 15 per cent and investment in machinery by 20 per cent as German GDP shrank by 5 per cent.
The bad year is over. The economy may grow modestly in 2010. But the composition of that growth will not provide much solace for other members of the euro zone.
Recent figures demonstrate the problem. Before the 2009 disaster, in the three years from 2006 to 2008, German households increased their spending by just 1.4 per cent in real terms. The increase in US household spending in the same period was 5.4 per cent – three times faster.
The news is not new: Americans spend, Germans save. But the eurozone problem is that Greece, Spain, Ireland, Portugal and Italy could do with Germans that buy their goods rather than sell them Mercedes and machine tools on credit.
Might Germans begin to spend more? The obstacles are many. A strong euro will deter a potent export revival. Unemployment, 8.1 per cent of the workforce now, may rise further in 2010 as government incentives to firms to retain staff wane.
Meanwhile, the reforms that have made German workers and industry ultra-competitive have also reduced households’ spending power. And profound demographic forces are at play. The population is expected to decline from over 80 million now to less than 70 million by 2050 and to become more elderly. In general, the old are not big spenders.
For the euro-periphery all this is important. In the euro zone’s first decade, periphery countries borrowed cheaply and grew on credit. Now they have to generate growth through production and exports. They may find the German-led eurozone does not offer the easy ride they expected.