Today’s news that Germany’s economy contracted 0.25 percent in the fourth quarter is pretty much all the confirmation we need that Europe is re-entering a recession. The German slide is small, but Germany is the continent’s strongest economy (for all of 2011 GDP grew 3 percent). Greece, Ireland, Portugal, Spain and Britain are already in downturns — have been, in some cases for years — with Italy and Hungary not far behind.
The big problem continues to be unsustainable sovereign debt in many eurozone member nations, the associated banking crisis and contagion, and the recessionary pull of austerity, which extends to Germany’s export power. The restructuring of Greece’s debt has solved little and left bondholders angry. Nobody is fooled that the European Central Bank can keep shooting a “bazooka” to stave off recession or even a breakup of the monetary union.
The only thing standing between Europe and a return to recession had been Germany. That hope seems increasingly dim.
It remains to be seen what this means for America. Washington is one of the states more exposed to continental trade, but it’s very small compared with exports and imports to and from Asia. The big unknown is whether a European banking crisis worsens and spreads to American “counterparties” among big banks and the shadow banking sector.
And Don’t Miss: Governments are not corporations || Foreign Policy
Today’s Econ Haiku:
Big Hostess question:
What’s really in those fruit pies?
Not the pension funds