Germany: From Hero To (Almost) Zero

Aug 16, 2011

Strong economic growth takes the sting out of debt. When a nation's income increases, tax revenues go up. Existing debts become more manageable.

By the same token, when economic growth stalls, debt problems become tougher to solve.

So this morning's news out of Europe is cause for concern: Overall, the EU economy grew by just 0.2 percent between the first and second quarter of this year, officials reported.

The German economy — the export powerhouse, the core of the core of Europe, the economy on whose future Europe depends — grew by 0.1 percent. The French economy, the continent's second-biggest, didn't grow at all in the second quarter. Growth in other countries was slightly higher, but still weak.

In the coming months, Germany and France are likely to be pulled more deeply into supporting the weaker economies on Europe's periphery. There's been talk recently of issuing eurobonds, which would put Germany and France on the hook for the debts of other EU countries.

Angela Merkel and Nicolas Sarkozy are meeting today to discuss Europe's debt troubles. Officials have said eurobonds aren't on the agenda — not surprising, given significant political opposition in Germany to further bailouts.

But more bailouts will almost certainly be needed. The stalling economy in the core of Europe is likely to make that opposition more intense, and make future bailouts more economically painful.

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