Germany’s warning of five tough years could be a backbreaker for the euro | Forexlive
Sometimes politicians say the quiet things out loud.
That happened this weekend with German Economy Minister Robert Habeck, who warned that Germany faces five difficult years due to deindustrialization from high energy prices.
Germany is already in a recession and its centered on industrial companies, that are wilting and cutting production.
“We have a major transformational period ahead of us until 2030,” during which time Germany would move from a traditional, fossil fuel-dependent industrial base to green energies like hydrogen, Habeck said.
He called for more energy subsidies.
The problem for that is budgetary. Eurozone countries are bound to deficits of less than 3% of GDP and Germany was been the major policeman of that policy in the 2010s, drawing the wrath of Spaniards, Italians and Greeks, among others. Now those ecconomies are doing relatively well and Germany is struggling.
The deficit rules are currently suspended because of covid and that will probably continue through 2024 but at some point, they need to end. How hard the periphery countries want to push at that point, will determine what comes next for Germany and the eurozone economy. Germany’s political situation is also tough with deficit hawks still holding huge sway in a fragmented system.
Habeck put it bluntly:
“The question is: Do we borrow money or do we no longer have industry?”
Either options is a negative for the euro, just on different timelines. I suspect the subsidies will flow, which should also help to boost safe havens like gold.