Cost of a eurozone collapse for German economy: 10 pct

Cost of a eurozone collapse for German economy: 10 pct

Cost of a eurozone collapse for German economy: 10 pct

Two men standing on a scaffolding during construction works, near the small Bavarian village Germering near Munich. Unemployment in Germany edged higher on a seasonally-adjusted basis in June. AFP photo

A complete collapse of the euro would shave up to 10 percent off the German economy and even just the departure of Greece from the currency club bears substantial risks to business, according to government economic advisor Lars Feld.

Feld, one of five “wise men” economists whose views help shape the public debate in Germany but often have little direct impact on policy, said recent estimates by the group suggested Germany’s gross claims from the eurozone are about 3.5 trillion euros.

“When a good part of the claims would go in default, there would be insolvencies in small and medium-sizes firms and the economy would be hit,” Feld told a Frankfurt journalist club on Aug. 29 at night in remarks slated for publication yesterday.

“This drop could amount to 7 - 10 percent of the (German) gross domestic product (GDP),” Reuters quoted him as saying yesterday.

Risks of Greek exit

A Greek exit could also not be achieved without substantial costs, Feld said and added that the risk of contagion via the banking system had been reduced, but there was still a strong risk that Greece’s exit could prompt investors to expect other countries to follow suit.

A number of German officials have been talking up the options of pushing Greece - which is largely being kept afloat by funds from the German government - to drop out of the euro.

Chancellor Angela Merkel and allies remain firmly against that idea.

Feld also said that there are few options to solving the crisis, “and many of them are not especially pretty,” Reuters reported.

He also said that he expected the German economy to grow about 0.8 to 0.9 percent this year, with third and fourth quarters seeing no growth or contraction.

Separately, the number of Germans without jobs ticked up in August amid growing signs the European financial crisis is taking its toll on the region’s largest economy, the Federal Labor Agency reported yesterday.

Some 29,000 more Germans were out of work in August over July, raising the jobless total to more than 2.9 million. When adjusted for seasonal factors, the number of jobless rose by 9,000. Both the adjusted and unadjusted unemployment rates remained unchanged at 6.8 percent, the agency said.
Germany has been counting on domestic consumption to help offset weakening exports within the eurozone, where several countries are in recession, The Associated Press reported.

But the new figures raise concerns about consumer spending, said Carsten Brzeski, an economist with ING in Brussels, who noted that the rise in jobless was the highest August increase since 1993.
“The strong labor market has been one of the main drivers of German growth in the first half of the year,” he said in a research note. “Looking ahead, however, it is doubtful whether private consumption can really take over the baton as main growth driver for the German economy - today’s numbers provide further evidence that the labor market is gradually losing steam.”