Euro zone GDP: It has just become harder to lecture Angela Merkel. For months the German chancellor’s European partners have persistently — and vainly — begged her to stimulate the economy. Deaf to her colleagues’ pleas, she has stubbornly stuck to a hawkish fiscal policy and intensified her push to cut the budget deficit.
At the very same time, however, German gross domestic product grew by an eye-popping 2.2 per cent in the second quarter of the year. That’s the fastest quarterly rise since Germany was reunited 20 years ago.
Economists are now rushing to revise their estimates upward, with some predicting that German growth may even top 3 per cent in 2010. The government, remaining cautious, says it would be happy with 2 per cent. And what's good for Germany is also good for the rest of Europe. France's growth in the same quarter was also better than expected — although it remains a sluggish 0.6 percent.
The global recovery, coupled with the euro’s decline, was widely expected to stimulate German exports. The country’s equipment goods are in demand as ever, and the German industrial machine is finely-tuned to meet its global customers' needs.
But the figures show that domestic consumption is also rising, and that investment is picking up. This means Europe's economy has become more dependent on Germany.
The EU is fast turning into a three-speed economy, with Germany in a class of its own, France and Italy struggling along, and the more fiscally-challenged countries — including Spain, Greece and the UK — lagging behind as they concentrate on eliminating deficits and cutting debt.
Germany seems to have entered a virtuous circle, since its strong growth will naturally contribute to shrink its budget deficit this year. But there's no sign Merkel will ease the fiscal discipline, and her spending cuts will kick in towards the end of the year. Furthermore, Germany’s export-driven model will be affected if the Chinese and US economies do slow down.
There's some irony in seeing the fiercest proponent of a strong euro become the main beneficiary of its weakness. But what is certain is that Merkel’s hand in the ongoing European debate about economic policy has just been strengthened.