GERMANY, the EU’s biggest economy, has crashed into recession data revealed by the Federal Statistics Office last week showed.
This was a blow to the German government which had been confidently predicting that growth in the country’s Gross Domestic Product (GDP) would double this year.
The German newspaper Bild reported that the country’s economy had already ‘collapsed’ in the final quarter of 2022, – a collapse that will crash the entire economy of the eurozone.
Germany is by far the biggest economy in the eurozone with almost 30% of the entire economic output of the bloc. Out of the 27 members of the zone over half had Germany as their largest trading partner giving the German government and bankers a powerful dominant position within the EU.
That position as the powerhouse of Europe now lies in tatters as its manufacturing sector declines with no end in sight as the economy contracted by 0.3% following a shrinking of 0.5% in the final quarter of 2022. Despite all the confident predictions that Germany’s economy was set to grow, the crash into recession is hardly a surprise.
Last June, economists were warning that Germany was facing a nightmare of the highest inflation rate for 50 years vastly accelerated by the economic sanctions on Russian energy supplies.
Germany relied on Russia for nearly 55% of its natural gas and 35% of its oil while Russia supplied over 4% of the EU’s total energy requirements.
The sanctions on Russian gas and oil, along with all the financial sanctions that the imperialist nations assured everyone would bring Russia to its knees and prepare the way for regime change, have backfired spectacularly, bringing the economies of Europe and Britain to the point of collapse.
The dive into recession in Germany is being blamed squarely on the fact that workers are just not spending enough – hardly surprising when grocery bills in the country are up by a staggering 28.6% since 2021.
With rental, energy and food prices soaring, the German working and middle class are paying for the war and sanctions on Russia with the Statistics Office revealing that in 2021, even before all the sanctions, 17 million German citizens (20.9%) were officially living in poverty, a number that will only be massively increased today.
The collapse of the German economy isn’t the only nightmare stalking the EU nations. The European Central bank (ECB) yesterday issued a stark warning that the eurozone’s top banks are under threat of collapse. The threat comes from the so-called ‘shadow banks’ – these include hedge funds and other financial companies that provide loans to households and businesses but are not classified as banks and are not subject to any regulation or oversight by governments or central banks.
These shadow non-banks are huge, with the US Financial Stability Board estimating that they held just under half the world’s total financial assets in 2021.
These shadow banks specialise in high-risk loans that are vulnerable to increases in the interest rate and the fear is that as the ECB (along with the Bank of England) push up interest rates to try to curb inflation it will cause these non-banks to crash, as they don’t have the assets to pay back their billions as their investors scramble to withdraw their money.
The ECB is scared about the risk of spillovers to traditional banks as the shadow banks in turn rush to withdraw their funds from them causing a run on the banks similar, although much greater, than the run on the three US banks that collapsed in March.
Although this time it’s not just three regional US banks at risk but nine of the top eurozone banks.
With the entire EU facing imminent collapse into recession and a banking crash the time has come for the working class to put capitalism out of its misery.
The way forward is for the working class of Germany to unite with workers across Europe by building sections of the International Committee of the Fourth International in every country to mobilise the strength of the working class in general strikes to bring down their own capitalist governments and go forward to establishing the Socialist United States of Europe.