With so many understandably focused on Hurricane Sandy and its aftermath, few noticed this week's economic numbers out of Germany -- a key part of the European puzzle. Yet the latest data releases could well prove consequential.
Germany is quite an economic success story. It is also the world's fourth largest economy, and its role in Europe is both central and critical.
So far, Germans have been immune from the mess around them. While other euro zone economies have experienced economic contraction, high unemployment and periodic financial scares, Germany has maintained exceptional stability -- so much so that the unemployment rate even reached historic LOWS (yes lows) earlier this year.
Most agree that a good part of Germans' good fortune is home grown; but not all.
For years, Germany has maintained fiscal discipline and implemented deep structural reforms. But it has also benefited from the weaker currency associated with its membership of the euro zone. And its borrowing costs have been lowered by all the "flight capital" coming into the country from struggling neighbors.
Yet it is not all this straightforward.
Some feel that Germany's success has undermined its ability to comprehend what other euro zone economies are going through. Consequentially, the collective response to the region's existential debt crisis has consistently been too little, too late.
Others disagree. For them, Germany's strength acts as an anchor of relative stability for the euro zone as a whole -- both present and future.
This is where this week's data releases come in.
Germany's jobs numbers disappointed as unemployment rose by more than expected. Meanwhile, economic confidence numbers deteriorated.
These indicators confirm that German economic growth is weakening, and, most likely, will continue to do so in the months ahead. But it is not clear what this evolving economic turn in Germany means for the rest of Europe.
Will it make Germans more insular or, instead, cause them to engage more constructively in a region-wide solution? We should hope for the latter but worry about the former, as it's essentially a toss-up at this stage.
Stay tuned.
Mohamed El-Erian is the CEO and Co-CIO of PIMCO, which oversees nearly $1.8 trillion in assets and runs the Pimco Total Return Fund, the largest bond fund in the world. His book, "When Markets Collide," was a New York Times and Wall Street Journal bestseller, won the Financial Times/Goldman Sachs 2008 Business Book of the Year and was named a book of the year by The Economist and one of the best business books of all time by the Independent (UK).
Cross-posted from CNBC.com
The entire derivatives process results in banksters with more 'money' than sense. It's criminal to see them hatch so much debt, pass it on to hapless homeowners, and then get made whole by sovereign nations increasing their debtload to compensate.
Furthermore as the German economy is based on production and the raw materials are imported, a stronger currency would make more affordable these imports, so the price of the final product won't change. Or we would just print money as the US does.
The German economy has a huge head start, for better or for worse, and some of the reasons are very basic.
It is becoming clearer for the Germans that we cannot afford to have all the current member states in our club, thus preferring a closer and stronger union with countries with similar culture, ethics and economy. These should be Germany, Austria, Holland, Luxembourg, Belgium, Denmark, Sweden and Finland. Let the south to have their own union, currency and laws.
Also, let us not forget that Germany is a big winner under the euro — for German exporters, the euro is under-valued. Which means that the euro is over-valued for most other eurozone countries. If Germany were still using the DM, the DM would have risen considerably in value against other currencies, eroding Germany's advantage. Conversely, countries like Greece and Italy could de-value their currencies, thereby making adjustments without the entire burden being imposed internally (i.e., draconian wage cuts, etc.).
But Germany can't win this forever — let us not forget the zero-sum nature of international trade. As Germany's export markets weaken, German wages are too low to pick up the slack due to the decade of wage cuts. That means problems there — as German manufacturers' profits come under increased pressure, cuts become inevitable. That means cuts in Germany, with the workers whose sacrifices during the past decade on which rests the German boom taking the brunt of it.
Austerity does not stop at borders.
Certainly one can question the differences in retirement ages within the Euro zone. And the recent election of Monsieur Hollande has reversed - in part - the Sarkozy inspired rise in the French retirement age.
If salvage of the Euro requires a Euro-wide policing of big banks and a stricter regulation of regional and local banks, then why not extend Euro regulation to the pension sector. I, for one, cannot think of a reason not to extend the retirement age for at least some sectors of society. A graduated retirement age would satisfy the needs of society and address some issues of equity. By this I mean, in general white collar workers have less physical burdens placed upon them during a lifetime of employment than manual workers, say, coal miners. Those exhausted by a life of hard, physical work ought to be able to retire at an earlier age than, say, a government bureaucrat.
Earlier retirement should not entail a reduction in benefits unless one chooses early retirement with reduced benefits. What I mean is that a government employee could expect to retire, say, at 70. If he or she chose to retire at 68, then a reduction in benefits should follow. A coal miner who retires at 62 - the hypothetical retirement age - should not suffer a corresponding drop in benefits. In short, retirement needs to be needs tested. Perhaps that would make the different retirement
By which they mean, Germany is reluctant to give away its money just to support the black hole countries that can't support themselves because they are bankrupt and too structurally flawed to ever survive on their own when they aren't allowed to cheat.