The millstone round Germany's neck

Sound bite: German IFO business rose for fourth successive month in February to 107.4 from January's 104.2

German economic confidence surveys seem to be showing more signs of economic spring, but the economy is still struggling with a massive millstone round its neck. The rest of the beleaguered Eurozone economy. The latest rise in Germany’s IFO business climate index is certainly good news and corroborates the latest ZEW survey’s hints for stronger growth ahead. But the optimism is out of step with what current real evidence and logic tend to suggest. The fourth quarter 0.6% dip in German GDP confirms that the economy has slipped half way back into recession. With so much of German export demand destined to the rest of the Eurozone, it is no surprise that a plunge in exports was the biggest drag on the German economy in the fourth quarter. Self-enforced economic austerity is taking a massive toll on the Eurozone outlook. The economy is under water, deeply in recession and pulling the German lifeboat down with it. This can hardly fail to make its mark on the Bundesbank hawks, who have been a lot more sceptical about the ECB doves’ drive to greater monetary largesse to relieve the situation. Even the normally rock solid German export economy is now starting to show signs of stress in the face of the strong euro. There is going to be a growing clamour throughout the Eurozone for ECB policymakers to take a lot more care over the currency outlook. There is a good chance that the ECB will tacitly be throwing their hats into the ring for the emergent currency war.