Friday, 12 October 2012

Germany's leading economic institutes critical of Merkel's policies

Will Merkel end up as a failure?

With only a year until the next parliamentary elections in Germany, things are looking really bad for chancellor Angela Merkel and her government. Merkel's failed euro policy and the absurd energy transition policy are seriously weakening the German economy and her chances for re-election. In order to have a chance to continue in office, Merkel must reverse both these key policies. But there are no signs that she has the courage to do that.

A report presented by Germany's leading economic institutes this week must be sober reading for the chancellor, just back from Greece

Just two days later, however, leading economic institutes in Germany have darkened the mood considerably. The institutes presented their autumn economic forecast on Thursday, and cast doubt on whether Greece would be able to remain part of the euro.
"We believe that Greece cannot be saved," said Joachim Scheide from the Kiel Institute for the World Economy, one of several top economic institutes tasked by the German government with examining the state of the country's economy twice a year.
Oliver Holtemöller, of the Halle Institute for Economic Research, was also pessimistic at the Thursday press conference called to present the evaluation. He said it is unlikely that Greece will ever be able to free itself from its debt burden -- and called for a new debt haircut for the country.
Specifically, the report forecasts that German economic growth for 2012 will only end up being 0.8 percent, slightly down from recent predictions, and that growth next year will likely be weak. Instead of the 2 percent previously forecast, the report released on Thursday now estimates GDP growth of just 1 percent in Germany in 2013. That growth, such as it is, will come almost entirely from exports, which are holding up, the report says.
But that is the best-case scenario, based on the assumption that the debt crisis in the euro zone does not worsen. The report's authors, however, do not believe the worst has passed. "The current evaluation of the German economy is based on the assumption that the situation in the euro zone … will gradually stabilize and investor confidence will return. That, however, is in no way assured," the report reads. "Downside risk dominates … and the danger is great that Germany will fall into recession."

The report was also heavily critical of the European Central Bank's plan to purchase unlimited quantities of sovereign bonds from debt-ridden euro-zone member states on secondary markets. "The ECB is becoming the guardian of national budgetary policy and possibly even holds sway over the solvency of individual countries," the report reads. "In addition to the bank's independence, its credibility is also in danger."
Furthermore, the report adds, such behavior could trigger high inflation, which would seriously damage the ECB. "Should higher rates of inflation result, it will be extremely difficult to re-establish the ECB's credibility," the report says.

What is sad, is that the opposition in Germany does not offer any credible alternative - with the socialists and the greens in charge, the situation would get from bad to worse. 

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