“Should the alleviation of uncertainty and an expected gradual recovery in the rest of the euro area fail to materialise, [German] growth can be expected to remain below its potential for longer.” […]‘A gradual pick-up in activity projected towards the end of the year is conditional on a further and tangible reduction in this uncertainty and an… expected gradual recovery in the rest of the eurozone,’ it said.”
Germany and the rest of the EU now find themselves caught in a vicious circle. Germany needs a strong EU to get out of the doldrums, and the EU needs a prosperous Germany to backstop the many proposed bailout plans needed to keep the southern economies afloat. Given this dynamic, any report of faltering growth in Germany is bad news for the rest of Europe, as it means Germany will have less and be even less disposed to send resources abroad.This could also be problematic for Merkel, who is feeling pressure from anti-Euro, anti-bailout groups on the right ahead of September’s elections. Germans are already reluctant to bailout “profligate” southern Europe; if the economy continues to stagnate, that reluctance will grow and even more voters will flock to the opposition.It’s still not clear what exactly this means for Europe, but it’s definitely nothing good.