The robust state of the German economy stands in marked contrast to the weak state of much of the rest of the euro zone. In 2014 it expanded by 1.5 per cent of GDP – twice the average rate of euro-area growth. Germany’s public finances remain in good shape. The government achieved an overall budget surplus last year; it is planning a balanced budget again this year.
Germany's unemployment rate (5 per cent) is less than half the average of the euro zone. The unemployment rate in Spain and Greece, however, is five times greater. Overall the euro zone, with some exceptions (notably Ireland, which is benefiting from strong US and UK demand) is greatly threatened by slow growth, deflation and general economic stagnation.
Germany accounts for about a third of euro- area activity, and its government regards its economic model as one that some other euro zone countries should seek to emulate. Chancellor Angela Merkel and her finance minister, Wolfgang Schäuble, favour continued fiscal stringency and further structural reforms as the painful path to economic recovery the weaker peripheral states must take. Further fiscal stringency, however, in a deflationary environment, where prices are falling and demand and investment weakening, only makes the position of those peripheral states – whose economies are stagnant – worse .
Germany has been unwilling to expand its economy, and to boost demand both to help itself – by borrowing to invest in needed infrastructure – and to provide a stimulus for the rest of the euro area. And it has been equally unenthusiastic about the European Central Bank’s efforts to provide a monetary stimulus such as quantitative easing.
No country has benefited more from the single currency than Germany. But as the President of the European Central Bank, Mario Draghi noted – in an interview last week with a German newspaper – the ECB has a mandate for 19 countries, not just one.