Economic Doom and Gloom from Germany

Next year could bring more bad news, says Chancellor Angela Merkel, since no one can predict when the economic slide will hit bottom

The worst part, it seems, is that no one knows exactly when the economic slide will hit bottom. That appears to be the conclusion a number of German politicians have reached as the real economy continues to be battered by the financial crisis. It is, they say, simply impossible to tell when the worst will be over.

"Nobody can say," German Finance Minister Peer Steinbrück said in an interview published Sunday in the Berlin paper Tagesspiegel. "And when you know someone who says he knows, don't believe him...We are in a recession and we are facing a difficult 2009."

An increasingly long list of indicators seems to support that assessment. An annual poll conducted by the Cologne-based German Economic Institute and released on the weekend indicated that only 52 percent of all businesses in eastern Germany would hold onto all their employees in 2009. In western Germany, the number was 45 percent.

Business confidence in Germany is likewise plunging. The latest readings from the Ifo Business Climate Index, taken monthly, shows that the indicator has fallen to 85.8, its lowest reading since Feb. 1993 and much lower than economists had expected. The index has been declining more or less steadily since March of this year when it stood at 104.6.

German Chancellor Angela Merkel said in a Sunday interview with the tabloid Bild am Sonntag that 2009 would be "a year of bad news." But she also warned, in her weekly video address, that business owners shouldn't panic, since laying off skilled workers would put the businesses—and the German economy—in an awkward position as soon as the economic tide turns.

"As we know, after the crisis there will be growth again," she said in the video address on Sunday, "and then skilled employees will be desperately needed."

Her comments come as a debate continues in Germany about how best to confront the economic downturn. The German economy officially entered a recession in the middle of November—closely followed by that for the entire European common currency zone—and since then, there have been repeated calls for new stimulus packages.

Many feel that the measures so far taken by Germany aren't enough. Earlier in November, the German government introduced a package that foresaw €12-13 billion in tax breaks and incentives aimed at generating €50 billion in investments. Berlin has indicated it also backs a €130 billion European Union stimulus package currently under discussion.

There have also been growing calls in Germany, particularly within the conservative camp, to set aside the European Union's ambitious CO2 emissions reduction goals until the economy improves. German Economy Minister Michael Glos, from the Christian Social Union in Bavaria, a sister party to Merkel's Christian Democrats, threw his hat into the ring in an interview with SPIEGEL published on Sunday.

"It isn't the time to burden the economy with excessive environmental goals. We have to adapt the European Union's climate program to the new realities," he said. Specifically, Glos said that rules regarding the allowed CO2 emissions in car exhaust need to be rethought.

Glos also joined a chorus of voices calling for tax relief. "The economy would be helped were we to promptly sink taxes for those with low and median incomes," he said.

Still, the bad news was mitigated somewhat by a less pessimistic report from the German labor office, which suggested that the downturn would weigh less than expected on the German job market. The economy might shed an additional 130,000 jobs in 2009 "in the worst case scenario," Frank-Jürgen Weise, who heads up Germany's labor office, told Bild.

"With growth of minus 0.5 percent, our research institute expects 130,000 additional unemployed on annual average for 2009," he said. "In the case of zero growth, it's 30,000." Those numbers mean the labor office will not need to initiate any new programs for 2009, he said. "We are well prepared for the downturn."

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