Where is the German economy heading?

With the Euro crisis having spread across Europe, Germany is now starting to feel the pain. Markets have been cheering the Spanish bank bail out lately, but what is Germany facing this autumn? From Spiegel online.

The German economy will stagnate by this fall because of the euro crisis, Hans-Werner Sinn, president of the Munich-based Ifo Institute for Economic Research, said recently. The Macroeconomic Policy Institute (IMK) sees the German economy stagnating both this year and next. “The crisis in the euro zone, the strict austerity policies and the associated recession in many EU countries” have taken hold of the German economy, says the IMK. The economists at Citigroup expect a recession in the euro zone in 2012 and 2013.

‘Serious Implications’

In a situation reminiscent of the autumn of 2008, after the bankruptcy of investment bank Lehman Brothers, ailing banks are infecting the rest of the economy. “Cross-border financing is declining in Europe,” says Michael Keller, managing partner of the Frankfurt-based management-consulting firm Keller & Coll.

Investment bank Morgan Stanley says that Europe’s banks are undergoing a “Balkanization” that will have “serious implications” for the availability of loans and for growth in some countries. The euro, which was intended to stimulate growth in Europe, is becoming a divisive force in the crisis.

Full article here.