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IPFS News Link • Germany

Out of the Euro? Is Germany Heading for the Dexit? Recession, Social Fracture and Unemployment

• By Germán Gorraiz López

Doctrine of the "Debt Brake"

As Joel Kotkin points out in Forbes magazine, for decades "the countries of the North (Germany, Norway, Sweden, Denmark, Holland, Finland and the United Kingdom) have compensated for very low fertility rates and declining domestic demand with the arrival of immigrants and the creation of highly productive export-oriented economies". Thus, following the doctrine of the Schuldenbremse (debt brake) that Germany introduced in its Constitution in 2009 with the inescapable objective that "every generation pays its expenses and does not consume the taxes that their children will pay in the form of debt".

Germany would have achieved successive economic surpluses in the last five years because the zero or negative interest rates implemented by the ECB required less money to pay public debt and allowed it to accumulate reserves to deal with the social crisis COVID-19 with a massive investment boost estimated at €20 billion to kick-start the economy.  

The Traffic Jam of the German Locomotive

However, according to an analysis by the German Institute for Economic Research (DIW), at present Germany would be burdened by the war in Ukraine and the total cut in Russian gas supply that would have already caused a contraction of about €100 billion (2.5% of GDP). This contraction will have as collateral effects the entry of the economy into recession and the increase in the unemployment rate combined with a runaway inflation and the settlement of trade surpluses.

Thus, according to euronews.com, the German locomotive would have fallen in the fourth quarter of 2023 (negative growth of 0.3% of GDP) due to the increase in energy prices, the reduction in industrial production due to weak European demand, the stagnation of domestic consumption and the loss of competitiveness vis-à-vis the rest of the world, which has resulted in a severe decline of 1.2% of exports in 2023.


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