The fifth straight month of improvement in German business confidence, as indicated by the widely followed Ifo survey, showed how critical the country has become to Europe's fortunes. If it is built, machined, engineered or manufactured it seems emerging economies cannot buy enough finished goods as long as they are made in the Federal Republic. And, coupled with the country's tough measures against domestic inflation, such success is prompting European rivals to attempt to ape Germany's export-led revival.
And, for all the pain that Germany's stance is said to be inflicting on economically fragile eurozone members of the 'Club Med', the country's export model is rapidly being copied, not least by the UK manufacturing sector. UK manufacturing expanded in March when most forecasters were projecting either flat or negative growth. Some speculated that an increase in home consumer demand and a run-up in inventory could explain the rise, but the more interesting fact was a big increase in contract wins in Africa and Asia as companies moved aggressively on the back of weak sterling to sell goods abroad.
This is exactly the sort of growth that Germany has targeted for years. But Germany's success does not necessarily translate into prosperity for all and Germany's southern neighbours are feeling the pinch from the 'route one' approach its policy makers have adopted in cracking down on domestic inflation. For example, a surprise rise in house prices last year – German house prices never rise – led to the introduction of strict loan-to-value ratios on debt. That put a dampener on any hopes of German domestic consumer spending helping to float the economies of its ailing neighbours, whose woes were highlighted in weak manufacturing data from Italy, Spain and France this week.
So if Europe stared into the abyss last year, then this year offers little more than a long hard slog up a deleveraging mountain.
