By Jacob L. Shapiro
Germany’s economy has internal strengths to buttress it from the global exporters’ crisis. But while these strengths – including low unemployment, a dynamic labor market, increased exports to the U.S. and the EU, and low interest rates – can protect Germany to a degree, they cannot solve Germany’s underlying export dependency. They also cannot prevent the political chaos in the European Union that would result from an Italian banking crisis. And as both of these issues become more prominent, they will undermine the very dynamism shielding Germany from the same depth of pain that other high-exporting countries are experiencing.
This does not mean that we are ready to dust off the overused “sick man of Europe” designation for Germany. Nor do we believe that the German economy has reached a point of crisis yet. In our annual forecast, we predicted that Italy was going to be the weak link in Europe, and that Italy’s banking problems will force Germ