WORLD NEWS FOR MONTENEGRO DIASPORA
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SOURCE DW- AUTHOR:M.J. GDNUS
The German economy is faltering, but southern Europe is growing. Can the eurozone's recent problems become the engine of the entire Europe?
Just a few years ago, Portugal, Italy, Spain and especially Greece were a problem for the European Union and the eurozone.
However, that is no longer the case, Spanish Prime Minister Pedro Sanchez is convinced, who recently stated at the World Economic Forum in Davos:
"We in the south can also contribute to solutions to common problems."
He spoke about the possibility of producing and exporting more clean energy during the energy crisis after the Russian invasion of Ukraine - in Spain, this is predominantly solar energy. Sanchez emphasized that Spain should thus become "the most successful economy in the world," writes DW.
However, from a broader European perspective, the situation is not very favorable: the eurozone economy is stagnating.
The combined gross domestic product (GDP) remained at the level of the autumn quarter in the last quarter of last year, according to Eurostat. In the summer quarter, growth of 0.4 percent was recorded.
The real engine is the north, after all
Experts agree: the main reason is the ongoing weakness of Europe's largest economy. In Germany, GDP fell by 0.2 percent in the fourth quarter and in the whole of 2024.
"Germany is falling further and further behind," Alexander Krieger, chief economist at private bank Hauck Aufhäuser Lampe, told Reuters.
The strongest economy in the eurozone is weakening, and former problem players are gaining momentum - can the southern countries take over the role of locomotive in the future? Economist Gabriel Felbermeier does not see it that way.
The director of the Austrian Institute for Economic Research (VIFO) explains: "No, they cannot. They are simply too small economically for that." Germany and France, Felbermeier reminds us, account for "more than 50 percent of the eurozone's GDP. And to this industrially strong northern bloc should be added countries like Austria, Slovenia, Slovakia and also the Netherlands.
” And they are not the only ones affected: “Also, non-euro countries in the EU, primarily the Czech Republic, and partly Poland, are suffering from the weakness of the EU’s industrial core.”
Energy prices are killing Germany
What currently makes the “southerners” so strong and why the rest, otherwise so powerful, seem weak? For economist Hans-Werner Sinn, former head of the Munich-based Ifo Institute, the reasons are as much external as political decisions.
“Germany has suffered greatly in recent years from an energy crisis that was caused by a combination of the war (in Ukraine) and self-induced energy shortages,” he says.
He particularly complains about the intended transition from fossil fuels to green energy sources.
“The EU and Germany have lost all measure. The result of these interventions has led to our country now having the highest electricity prices in the world,” says Sinn.
According to Sin, “the chemical industry is particularly suffering.” The automotive industry, Germany’s pride, is also under great pressure: “European regulations on vehicle spectrum consumption have robbed the automotive industry of its competitiveness.”
Gabriel Felbermayer shares a similar view. In the southern countries, tourism and agriculture play a larger role, while industry has “a much smaller share of the total economic value. Higher energy prices throughout Europe, trade wars, the challenges of decarbonization – all of this is affecting the south less than the north.”
It will only get a little better
In addition, they are partly to blame: since 2010, the southern countries have recorded lower inflation rates than the north. “This has benefited their competitiveness. The reform efforts after the euro debt crisis have paid off. The same can be said for Greece, Spain and Portugal.”
There is no light at the end of the tunnel of economic hardship. At best, there is only a slight growth, estimates Commerzbank’s chief economist Jörg Kremer.
“The deep structural crisis in industry and Trump’s threats of tariffs are dragging everything down,” says Kremer.
The US president is threatening Europe with tariffs. This would hit export-oriented Germany in particular.
“There are no signs of recovery so far,” confirms Sebastian Dulin, director of the Institute for Macroeconomics and Economic Research (IMK).
He cites various reasons for the long-term stagnation of the German economy, including “China’s aggressive industrial policy, which is hurting exports. In addition, the high interest rates of the European Central Bank continue to hamper investment in the current economic conditions.”
Changes must come
There is hope that recognizing the problem is the first step towards improvement, and it seems that the former German Economy Minister Robert Habek has come to this realization.
He recently said in Davos: “In a way, we have overlooked that this is not a short-term crisis, but a structural crisis.”
This is particularly evident in the industry, which is struggling with high electricity prices. For Germany, the decisive factor is that exports are weakening, and domestic consumer sentiment is deteriorating.
“We have to reinvent our business model,” says current Minister Habek. The European Commission, however, expects a slight recovery of the eurozone economy in 2025 and growth of 1.3 percent. The European Central Bank, where experts expect a discount rate cut soon, is likely to take further steps during the year.
VIFO head Gabriel Felbermeier does not consider the current balance of power between northern and southern countries unusual.
“At some point, the industrially strong north takes the lead, and then again the southern countries whose economies are predominantly based on service industries. It is no different in other large economies, such as the USA.”
It is crucial that “the north implements the necessary reforms for greater competitiveness, while the south does not falter. It would also be important to strengthen the internal market, which is also a means of equalizing between individual regions,” Felbermeier believes.
