market views

Germany's Economic Pendulum Is On The Upswing, But What Does It Mean?

Frank Trotter | April 1, 2017 3 MIN READ

I firmly believe that none of us know what impact a particular policy will bring. Unlike medical researchers, policy-makers don’t have the luxury of testing out any given regulation before it becomes law. It might be written with an intended goal in mind, but the true effect it has isn’t fully realized until well after its release. So today I'm sharing a view of mine, but am fully willing to listen to others. The view that I have is that many of the European countries, operating on a model with heavy government participation, will unlikely be able to control things like budget deficits and economic growth. Especially in the post Great Recession environment. And that’s where Germany enters.

In discussions on the trading desk, we’ve observed that Germany has been building new rules to incent small and medium businesses through pretty much all of the 2000s. These days we think more in terms of Europe as a whole though and Germany by itself becomes somewhat lost. Though, in many respects, it is the economic driver of the Community and often makes up for the critical policy mistakes of some of its European partners.

Examining Germany through a U.S.-centric lens, one would imagine that it would be in terrible shape. There is a high quality and expensive national health system. Higher education is free. And Germany's equivalent of social security is much more generous than our own. So let's take a look.


First up, the total budget including state and local governments has been in surplus, nominal as it is, since 2014 and is projected to remain there for the next couple of years.

Back then, I thought the yields suggested there would be nominal growth over the next 10 years, with very little inflation. I would continue to suggest the same conclusion as indicated by the invisible hand. Take a look at Germany's budget below.

On to one of my favorite topics, debt held by the public as well as debt held by the government, or total national level debt outstanding. Here again, Germany remains in a good position with total outstanding debt declining a bit over the past few years. And of course negative interest rates have not exactly hurt. No wonder we liked the Deutsche Mark when it was available.

With Germany as the bedrock for the euro and with all signs pointing up for Germany, is it time to start entertaining the notion that it could perhaps begin to drive the single currency higher as the U.S. goes through what looks like upcoming policy changes?

After all, Germany is just one part of the Community. And the rest of the Community is a bit of an issue. Market noise suggests that Italy is on the ropes. Spain, Portugal, and Greece are not rocketing along. France is in the midst of a cacophonous national election, and of course, there’s always Brexit.

Even so and it’s just my opinion, but given Germany’s economic upswing I am starting to lean to the view it just might happen later this year.

Frank Trotter
Frank Trotter
Executive Vice President, Chairman Global Markets
Frank Trotter
Frank Trotter
Executive Vice President, Chairman Global Markets
Frank has over 35 years of experience in banking and global markets. When not in the office, you might find him speaking on the financial conference circuit, giving an interview on the latest world economic news, or at the nearest ice rink playing pick-up hockey.

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