Editor’s blog: Two-speed Europe gets into gear

As the Germans look ship-shape, Greece’s finances are in a worse state than ever. What does that it all mean for us?

So Germany confirms its position this morning as Europe’s top economic machine. (Not that any sensible individual doubted this for one moment even during the maelstrom of the last 3 years.) . In the second quarter its GDP zoomed ahead by a remarkable 2.2% There hasn’t been a faster rate of growth than this since reunification back in 1990. Punters worldwide are back in the market for BMWs – which had some cracking sales figures out this week – and Germany’s other high value manufactured goods. And they’ve got a half way decent football team for the first time in years.

But there is far less good news from what those Euro economists term the ‘peripheral’ nations. Even less charitable individuals insist on referring to them as the PIIGS (Portugal Ireland Italy Greece Spain) Growth in the sty is pitiful.

The Greeks are enduring the agony of major downturn at the moment and face the prospect of a prolonged slump. The Greek statistical service – never the most accurate with its use of the abacus in the first place – reckons that the Greek economy shrunk by 3.5% in the three months to the end of June. The Athens regime hasn’t been helped by the country’s truckers spending weeks manning the barricades. These stats are truly grim because the second half of the Greek year – when few wish to stretch out on a rainy beach in Mykonos – is normally much quieter when it comes to collecting other people’s Euros to fill the hard pressed Finance Ministry’s coffers.

The fact that the Germans are saving at an unprecedented rate rather than spending their Euros is bad news for everyone else. The towels are staying at home, so to speak. The only question for them remains how much of their war chest they are prepared to sacrifice propping up the Euro and its miscreant members in the periphery.

Equally concerning is the plight of Ireland where the government continues to have to pay sky high interest rates for the bonds it issues to remain solvent. The comparative yield on these bonds came very close to a record difference between those issued in Dublin and those from Berlin earlier this week. This means the investor-confidence gap between Germany and Ireland is growing again.

This really is worrying because Ireland has endured a huge amount of pain already after profound cuts. The assumption was that this lipo-suction would make the patient better. But it doesn’t appear to have done in the eyes of investors. It just appears to have left the patient weakened, vulnerable and with a lot of spare flesh sagging around the waistband.

So where does this leave us Brits? Up with the Deutsch or down with the PIGS? Well, we’re about to head for the slab Irish- style this Autumn as the scalpel gets to work. We still like to think we’re an economic class above the peripherals and we can, unlike them, still devalue our currency to make us more competitive. The systemic meltdown has maybe avoided but we’ve got some serious glums to endure for a while yet. I’m off on hols to see how the Italians are coping. See you in September.

  • john woods

    Just throw a message at me and make it relevant and entertaining and not too taxing ‘cos I never invited you in.