Germany can stomach Eurozone wobbles, says Holger Schmieding

World Finance speaks to Holger Schmieding, Chief Economist at Berenberg Bank, to discuss Germany’s economic future

October 28, 2014

Germany’s economy has taken a set of hits that have shocked the world. For a long time the country has been considered Europe’s strongest in terms of GDP and stability. World Finance speaks to a world-renowned economist to ask whether Germany can recover from a major stumbling block.

World Finance: The German economy is the largest in Europe and has been leant on to pull the entire eurozone into prosperity and act as a guarantor of the European bailout funds. How much does EU economic dependency drain Germany?

Holger Schmieding: First of all, Germany is basically used to having France and Italy as not very dynamic neighbours. Germany is also probably benefiting, at least medium term, from the economic rebound we see in much of the periphery. Greece still looks shaky, but Spain, Portugal, Ireland, are very much on the right track. Most importantly, Germany is oriented not just towards Europe, it is more focused on the global market then almost any other economy in Europe. So the wobbles in the eurozone, which we are seeing again, for Germany will be not too difficult to stomach in a while, as growing exports to the US, to the UK, and still significant gains in exports to Asia, cushion Germany to some extent from eurozone concerns. Having said that, Germany is highly dependent on business investment intentions around the world, including Europe. Germany is a highly cyclical economy, but it’s less its exposure to the eurozone, it’s the German exposure to the global cycle of sentiment and business investment, which makes for the German ups and downs which we sometimes see in the cycle.

Germany is basically used to having France and Italy as not very dynamic neighbours

World Finance: In part does Germany have the Greeks to blame for this period of stagnation?

Holger Schmieding: In Greece, things are not going well, but they’re not going extremely badly. No. We can actually see that Greek business confidence over the last few months held up better than the German confidence. The German current stagnation is triggered by geopolitical concerns which have nothing to do with the eurozone. Of course, at the margin, concerns about the eurozone, that is basically what is going on in Italy, will Renzi deliver reforms, what’s going on in France, will Hollande finally deliver reforms, these concerns also have a bit of an impact on Germany, but that is of secondary importance, and it definitely is not the fault of Greece?

World Finance: So it’s not the time for Germany to send the bailiffs round?

Holger Schmieding: All countries that have been granted temporary assistance by the German Bundestag thought the European mechanisms, all these countries are on the mend, from Greece to Ireland, Portugal, Spain, and with even sign of that happening in Cyprus. The German approach to the euro situation is pretty good. The actual problems to the extent that we have them in the eurozone, and we do have some, are actually those countries, France and Italy, which never had to ask the German parliament for help.