BERLIN — Germany’s economy probably shrank in the last quarter of 2011, according to government estimates released Wednesday, as Europe’s largest economy faltered under the stress of the financial crisis bedeviling the continent.
The economy contracted by 0.25 percent in the last three months of 2011, compared with the previous quarter, according to preliminary figures released by the German Statistical Office. It was the first time since early 2009 that the economy had declined.
Any solution to Europe’s ills will require Germany’s support. But much of what could help ease the crisis would depend on more money from Berlin, an unpopular option in the country. Analysts say that persuading Germany to give aid could be even more difficult in a recession.
The country’s fiscal situation has remained relatively unscathed during Europe’s debt crisis, as worldwide demand for the country’s high-quality manufacturing has kept it floating above its neighbors. But as more debt-ridden countries such as Greece have needed bailouts in recent years, Germany and other fiscally conservative countries have demanded that they impose strict austerity measures to try to jump-start their economies. So far, the cutbacks have only slowed them more, darkening Germany’s outlook, as well. Fewer people are lining up to buy what Germany has to offer, and the prospects for 2012 appear shaky because much of the country’s exports go to its neighbors. Broader uncertainty over the euro-zone’s situation is also dampening investment.
“The German economic situation will not suddenly improve this year,” said Klaus Deutsch, an economist at Deutsche Bank Research. “The sheer data don’t point to a very nice direction. We expect a year that will be flat.”
If the country’s economy sours further, Chancellor Angela Merkel might have a tough time pushing her constituents to further support Greece and other countries, including Ireland and Portugal, which have needed bailouts, and Italy, Spain and even France, all of which have seen their borrowing costs spike in recent months.
Some analysts argue that more pain for Germany might actually help convince the country’s politicians of the seriousness of the crisis.
“The more you feel the negative consequences of the debt crisis on the German economy, the more politicians may say we have to prevent an open escalation,” said Joerg Kraemer, chief economist at Commerzbank.
European leaders will meet at the end of the month to discuss their next steps to deal with the continent’s crisis. After a Wednesday meeting in Berlin with Italian Prime Minister Mario Monti, Merkel said that Germany has “great respect” for how quickly Monti has pushed through austerity measures, the Associated Press reported. “The speed and the substance of these measures are something that will strengthen Italy and improve its economic circumstances.” Italian borrowing costs have been close to 7 percent, a level that many economists consider unsustainable.
At the news conference, Monti said he supported a new tax on financial transactions, backing a push by Germany and France, but that he would prefer to have it apply across the whole European Union, the Associated Press said.
Germany is still the strongest country in the euro zone. While its economy appears to be stagnating — with some analysts predicting another contraction in the first part of 2012, which would be considered a recession — it grew 3 percent during 2011 as a whole, the statistical office said. Its unemployment rate has dropped throughout the recession, for example, recently sinking to a 20-year low. Its central bank predicted at the end of last year that the country’s economy would grow 0.6 percent this year. (In 2010, it grew 3.7 percent.) Greece’s economy, by comparison, is estimated to have shrunk by 6 percent last year, and the nation is desperately struggling to make more cuts to get on a more fiscally sustainable track.
Germany has made few cuts since Europe began sinking under its economic problems. In fact, the nation is planning a tax cut this year. Its 2011 deficit was 1 percent of gross domestic product, well within the 3 percent required by E.U. treaties. The overall growth for 2011 brought Germany’s economy back above its level before the 2008-2009 financial crisis (it shrank 5.1 percent in 2009).
In addition, investors still regard Germany as the safest country in the euro zone. Bond auctions this week have brought record-low yields, including one on Monday in which investors actually paid the German government to hold onto their money, a sign of fear about prospects elsewhere in the euro zone. Italian and Spanish borrowing costs have risen slightly since the beginning of the year, after easing in December.