Expectations for the performance of the German economy had improved in the last months, but they were based on the assumption that the conservative Christian Democrats and pro-market Free Democrats would form a coalition, an assumption that also led to an increase in foreign investment and a rise in value of German stocks.
Since these expectations have now been frustrated, it wouldn’t surprise me if investors pulled their money out of Germany at the first opportunity. What with the next govenment being unlikely to be very stable, a sudden boost in additional unemployment might finish it off.
If that would be enough to convince German voters that additional reforms are needed after all, that wouldn’t be a bad thing, at least not a bad as four more years of stagnation.
We are in a hole and we keep digging. More pain causes a turn to the left. No pain causes complacency – and a turn to the left. The pendulum never swings back.
I have been saying for some time that Germany and France have dug themselves a hole that will be too deep to climb out of and the economy will eventually collapse. The question in my mind is who will be around to pick up the pieces. It will take a ‘stong man’ type of leader that can rally enough of the public behind him or a ‘strong man’ type leader such as Hitler who can rally enough to take over through violence and threats. Socialism cannot prevail with out capitalists funding it and France and Germany are finding this out.
It took Japan 15 years to elect a government commited to reform (albeit not a terribly serious kind of reform) this week. I am afraid that it will take Germans another decade to face up to the facts.