Collapse in German growth will add to euro rebellion

News that Germany recorded only marginal, 0.1pc, GDP growth in the second quarter is not just an economic event; it is a political one too, for the German economic “miracle”, with output rebounding from its post Lehman low far more rapidly than any other advanced economy, has been about the only thing that has kept Germans onside on measures to support the euro during the last year and a half of turbulence.

Indeed, in some respects, the crisis has seemed a positive boon for German industry, for it has meant that its exports have enjoyed a far more competitive exchange rate than would have been the case had Germany still had the Deutsche Mark. Trade has boomed accordingly.

But as the world economy slows, even that advantage is beginning to fade. Now of course there are lots of anomolous reasons why the German economy would have slowed in the second quarter, not least the after effects of the Great East Japan Earthquake, which because of the disruptions it caused in the global supply chain would have hurt the German economy, with its high dependence on manufacturing industry, particularly badly.

Even so, there’s much to worry about. Consumption and investment in construction are slowing fast, and most of the forward looking indicators are turning down. If Germany isn’t even deriving a trade benefit from membership of the euro, then its support for further bailouts will begin to look more questionable still.

The European Central Bank’s decision to start tightening policy a couple of months back is looking ever more indefensible. Even in Germany, money has been contracting for some while now, yet the ECB has allowed itself to be persuaded by Bundesbank hawks into an almost suicidal approach to policy. The ECB’s actions have become dictated more by the intractable politics of the eurozone than the interests of sound policy. Thus it is that in order to quell German alarm over the way the euro is being managed, the ECB has thought it necessary to attack an imagined inflationary threat to sacred German principles of sound money.

It’s tempting to mock the piece on saving the euro that Gordon Brown, the UK’s former prime minister, has written in today’s New York Times. Why is he writing for the NYT, for heaven’s sake? Is it because he’s so discredited back here that he has to go to the US for anyone to take him seriously any longer?

The contemptuous way in which he used to treat other European policymakers and leaders certainly means that none of them will be listening to him. Yet it has to be said that this is a surprisingly good piece, which demonstrates a pretty sound understanding of the extreme nature of the threat Europe faces to its continued economic prosperity. Many will vehemently disagree with his solution, which is in essence just the European superstate the euro area seems to be careening towards in any case, but it’s well worth a read anyway.