In Germany, the Commentariat Doesn't Fear Recession. Maybe.: The Ticker

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By David Henry

How worrisome is the economic situation in Europe? Even the traditional Sommerloch (literally "summer gap"), when entire countries seem to take weeks off at a time, has become endangered. It wasn't just Chancellor Angela Merkel and French President Nicolas Sarkozy who had to work on Tuesday -- bond traders have postponed their vacations to spend more time demanding higher and higher interest rates from the region's laggards.

So, is another recession brewing at a time when economic growth is most needed to rid the weaklings of their sovereign-debt burden?

Handelsblatt, a Dusseldorf-based daily, provided an air of optimism Tuesday, citing Ferdinand Fichtner, head of macroeconomic policy at the German Institute for Economic Research.  The data were "certainly a real damper, but it doesn't mean the end of the recovery," he said. "There is still an upward trend in industry, even though a loss of momentum is evident.''

His view was, however, counterbalanced with a sober warning from Christoph Schmidt, president of the RWI institute for economic research in Essen: "We are in a long-term financial and economic crisis. This isn't over by a long way.''

Other observers hint at a conspiracy theory in all of the bad news. Is the crisis of confidence the result of a self-fulfilling prophesy by the media? Jan Grossarth at the daily Frankfurter Allgemeine Zeitung says the more the word "recession" is used in the press, the more likely an economic decline will descend on the region: "The more often that newspapers print articles that contain the word 'recession,' the closer a recession gets. In the last few weeks, the so-called R-Word Indicator has risen sharply again.''

"Germany, spoiled by success, can't decouple from the slower-growing world economy," warns Commerzbank chief economist Joerg Kraemer, according to Manager-Magazin, based in Hamburg. He still expects a 2011 growth rate of 3 percent.

Likewise, Andreas Rees, the chief Germany economist for Unicredit, says in Manager-Magazin that the full order books of German producers will "act as a type of airbag" against recession -- unless international customers cancel orders en masse, the way they did after the Lehman Brothers collapse in 2008. The role of risk aversion among investors and managers is "by far the biggest unknown," he said. If companies play it safe and cut back their planned investments, the German economy "would be hit hard and fast," he warned.

Holger Steltzner, publisher at the Allgemeine Zeitung, says in Wednesday's edition that the "economic damper for Germany is more than just a short breather after surprisingly strong growth. It was clear to everyone that the German economy couldn't escape unscathed when the rest of Europe and the U.S. were stagnating."

One common complaint in all the gloom hanging over Europe at the moment revolves around the lack of leadership. "Growth may virtually stagnate in the second half and there's a threat of a renewed recession," a Bloomberg article cited Martin van Vliet, a senior economist at ING Groep NV in Amsterdam, as saying. "It's up to Merkel and Sarkozy to prevent further contagion to the economy; the longer the turbulence persists, the higher the risk of a recession."

The Berlin-based Tageszeitung called for some Keynesian spending to avoid recession. In a commentary, Ulrike Herrmann asked the question: "Should we then save money at all costs, even if this would push the economy over the edge? Of course not! It would be madness to risk a recession now. The public debt wouldn't fall. It would just get bigger. It's logical: When the economy weakens, tax revenue drops off."

We'll see if the results of Tuesday's meeting between the leaders -- a call for harmonizing the Continent's business taxes and enacting a common tax on financial transactions -- calm the markets and the experts. But one suspects that, as usual, the consensus in Europe will be that there's no consensus. So what do Bloomberg View readers think will happen in the world's latest economic hotspot?

(David Henry is an editor with Bloomberg View based in Frankfurt.)

-0- Aug/16/2011 22:36 GMT