Investing

As German Confidence Drops, Bailouts Less Likely

Germany is the “banker to Europe” because of the size of its economy, the ongoing improvement of its GDP and the prosperity of its citizens and businesses. Confidence among voters about their well-being is critical to the support they give Angela Merkel as she is forced to lead a bailout of Greece and probably other weak nations in Europe. She seems reluctant to take that role, but the scope and wealth of her country’s “bank” make it inevitable.

German business confidence has turned downward recently, and that by itself could take that nation out of its critical role as primary savior of the eurozone. According to Bloomberg, “The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped for a third straight month to 107.5 from 108.7 in August. That’s the lowest since June 2010.”

IMF and ECB officials are already concerned that eroding support for Merkel’s policies could make her retreat from a tentative commitment of German funds to a larger and permanent bailout facility for Europe’s troubled countries. There is pressure from around the world for the eurozone to put its financial house in order. So far, there has been no specific answer to those calls. Germany could pull itself out of its role at the center of new contributions to bailouts. The drop in business confidence makes that more likely.

Douglas A. McIntyre