‘With Germany Struggling the Rest of EU is Struggling as Well’ – Scholar

According to Ewald Nowotny, an official from the European Central Bank, the German economy is more of a threat to Europe than Brexit. The official added that Berlin’s economic woes top the current political chaos in the UK and Italy. He also noted that it remained unclear if this was due to special factors or had structural reasons.

Sputnik has discussed this with Professor Reto Foellmi, head of the economics department at the University of St Gallen in Switzerland.

Sputnik: This seems like a very shocking headline actually that Germany's economy is actually more of a risk to the European Union than even Brexit. What do you make of the reasons noted by the European officials as the main causes for concern regarding the impact of Germany's economic slowdown?

Reto Foellmi: I wouldn't exaggerate Germany's economic situation now. Certainly, he made a big headline by this statement. But true, Germany is the most important economy of the Eurozone, and we were used to seeing Germany as an economic powerhouse leading the Eurozone business cycle; and now when Germany is struggling, of course, the rest of the Eurozone is struggling as well.

Sputnik: Can you tell us some of the details? Is it just a matter of the growth slowing down, or are there any other specific problems that lie deeper at the core of Germany's economic slowdown?

Reto Foellmi: Germany's economy is very export-oriented, think of the whole car industry. And these products simply are cyclical, so the more uncertainty we see in the world economy these industries are suffering the most. And in particular, the German industries have a focus on China and the US.

READ MORE: EU Parl't Backs Resolution Condemning Nord Stream 2 as Threat to Energy Security

Given the US trade policy now, of course, all these uncertainties mount together that the business outlooks for Germany don't look as nice they looked maybe one year ago.

Sputnik: You said that these are cyclical products in this case; but do you think that these woes could actually be a long-term development? And if that's the case, what will this mean for Germany and for the EU as a whole?

Reto Foellmi: I tend to think it is more a cyclical thing. In particular, of some specific problems of the car industry. Certainly, the present economic policies that Germany is pursuing in the labour market don't help; but I think this is minor compared to the big cyclical problems of the car industry we see now. Again, of course, Germany's position compared to other European economies like France or Italy, Germany stands very well and could be compared together with the Netherlands and Denmark.

And I don't align to Ewald Nowotny's statement that Brexit is less of an issue. Brexit actually is a big issue. Particularly it is an issue for Germany because Germany is so well and much linked to Britain and Brexit is an important issue for Germany; and Germany will suffer as well from Brexit as does the UK.

Sputnik: To what extent are fears of a Brexit already figuring in, especially in the case of a no-deal Brexit?

Reto Foellmi: The case of a no-deal Brexit, of course, is the worst scenario for everyone and it's the worst thing for the UK in particular. Germany would suffer much more than France or Italy because German economy is more linked to the UK than these Southern European states; and also it's more linked than France, actually.

Sputnik: Can also you clarify if Trump's trade war with China is at all affecting Germany? Obviously, it seems that it would be affecting Germany's auto market.

Reto Foellmi: Absolutely. Again, Germany is the world champion in exports. Being such a trade-dependent nation at the end of the day, trade woes and possible trade wars, of course, are much more important for Germany than for other countries. Germany will suffer, of course, if the trade war heats up again between the US and China.

Sputnik: What can be done by Germany or by the German government to reduce their sensitivity to the trade dispute between the US and China?

Reto Foellmi: In the very short term, actually not much. A medium way out, of course, is to hope that the Eurozone problems, or the Eurozone views, are cured; because at the end of the day the most important market for Germany is still the Eurozone, the UK and the Eastern European countries.

Sputnik: Germany right now is the lead economy in the European Union. If Germany loses that position for any reason, which countries in the bloc could possibly step up and take that position?

Reto Foellmi: Germany is, of course, by far distance the leading country and the leading economy; the Germans themselves wouldn't maybe subscribe to this, but being Swiss, Germany is clearly the natural leader not only in economic but also in political terms in the Eurozone with its very well-educated workforce, very high-quality products and well-designed services. So, I don't see that Germany will lose its leading role in Europe in the near future. 

READ MORE: Germany, Finland, Denmark Urge EU States to Halt Weapons Sales to Riyadh

I would even argue to the contrary, Germany must always take care that they are the leading economy, they should be aware of that; and they should use their influence to implement reforms in the Eurozone and to help that we don't end up in a no-deal situation. They should also put in their weight to ensure that the relations between the UK and the EU stays at the best terms possible when the UK will have left the EU.

Sputnik: Would you say that Europe's Central Bank official Ewald Nowotny was he incorrect?

Reto Foellmi: No. I won't say he was incorrect at all. Clearly, if Germany has a cold, that's much more important if, let's say, Andorra is ill. Germany is the economic powerhouse of Europe. However, I don't follow him that this is the worse compared to the other crises. Of course, I cannot see the future, we will really see whether there is a recession in Germany in 6 or 12 months. This problem will then, of course, change discussion in the Eurozone and in the European Union.

The views expressed in this article are solely those of Reto Foellmi and do not necessarily reflect the official position of Sputnik.