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Some Germans are nostalgic about Deutschmark but others like EURO !

Right now all the good news are coming from one place in Europe and that is Germany. Few days ago Germany raised it’s GDP forecast to 2.3% from previously forecast rate of 1.8%. Let see it’s GDP growth rates with EURO area  –

Germany is one of the big exporter of the world, and since the economies are recovering, demands for products in export market are increasing. That has a big impact on it’s GDP. Though I don’t have the 4th quarter GDP growth rate but some experts are expecting it below than 3rd quarter.

Germany is fundamentally too strong and time is making  them better from others. Now only thing that can make them best I think their private consumption, but all countries especially the developed countries are facing this problem in this economic situation. But gradually things are becoming normal as companies are hiring more as export demands are coming. So not only export market now domestic demands also improving, as confidence of the consumer are increasing and Germany’s  household are increasing their spending, all these are good indicator for Germany. Here it is necessary to say that Germany’s Business Climate Index roses from 109.8 in December to 110.3 in January and in few days ago Germany overtake UK as most favored  nation for real estate investment. These are very good news for them.

German labor cost which was highest level at once, has reduced lot in these years to match with others in this competitive world.
Now let see the jobless rate.

Germany the main force in EU, the economic power house made huge gains in export market in past. When we compare it’s jobless rate we can see the difference between other EU members  and Germany. As demands are increasing so the employment as we can see that unemployment fell by 2,62,000 in 2010.
Retail sales are rising now all this can put pressure in economy by way of inflation as many economies are suffering from inflation.  Euro area is also facing it’s late effect.

In December Euro zone inflation rose above the ECB’s target, Germany’s inflation also increases in December 2010, but looks like things are not  going beyond their comfort zone.

Unlike others , Germany has a healthy trade surplus. Look like all those advantages sometime works as an obstacle for Germany’s own interest.

Let talk about the first problem, as we know that many of these EU countries are facing huge debt problem, forget about PIGS there are many others who can appear there to include their name in PIGS. As we saw that few experts and political person from different countries were telling that greater contribution is needed from Germany to protect the strength of Euro and their deteriorating members. But Germany repeatedly manifested that quantity is not the problem and there is no need of increasing the fund of EFSF, in coming future there will be many meetings on this issue.
Germany chancellor is facing quite a big challenge in home about this help that Germany is providing to other EU members. Many country men are opposing this help thing, especially the oppositions. As nobody wants to take the responsibility of other weaker sections.

But I think there is an escape from this problem & the process has already started . China and Japan already started providing their help to these problematic countries . One good example of that is the selling of bonds of these countries in last week. The new 5 billion Euro bond issued by EFSF was 8 times oversubscribed, this is quite outstanding.
One important thing to say here that final price guidance of  this 5 billion euro bond issue yields around 2.8%, just a premium of 0.57% above the German Govt. bond of same maturity. So this strong demand of these EFSF bond is very very good sign for not only the troubled countries but for overall EU.

The second issue is the EURO. As Germany is expecting more from export now if  EURO appreciates it makes them loss in export market. So for Germany it is necessary that Euro should be in a favorable position. Though in currency market there are lot of speculations going on, as we saw in past that some experts almost equals the rate of US$ with EURO. But in real world, things always don’t go in same fashion.

Though some experts said that this gains in EU bonds is short-term as its are going to show it’s true picture. Now definitely the question of paying in other’s fault comes? 
Somewhere I was reading that poll indicates that, Germans still feel nostalgic for  DeutschmarkSo it is sure that Germany has the options.

Few times ago  Trichet said that EURO would still be around 20 years and told that price under EURO is more stable in Germany than it was in pro-euro years.
I think for Germany, existence of euro is very important in this competitive world. As in few days ago German chancellor Markel told that they will support whatever is needed to support the EURO, also with respect to the Rescue fund. But one thing that makes me anxious that is, Chinese & Japanese expectations from EU members. As we can’t forget that, exports contribute a huge portion in GDP of both China & Japan. So beyond so called saving of foreign reserve, there can be many things, which we don't know!  may be in future !

NOTE:  Please see the disclaimer of this blog.


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