On Friday in the Financial Times, Claire Jones wrote from Frankfurt, “Optimism that Europe’s economy might finally be turning a corner was fuelled on Friday by stronger-than-expected growth data from Germany and encouraging signals from the wider eurozone. The figures, for economic growth in the fourth quarter of last year, sent stock markets higher, despite lingering concerns about the potential impact of a showdown between Greece and its creditors over the country’s international bailout.” (“Germany fuels hope for eurozone recovery,” February 13, 2015) The German economy is clearly Europe’s engine of economic growth. It grew by .7 percent in the fourth quarter of 2014, exceeding expectations of .3 percent. Lower energy prices in the first quarter of 2015 should insure that German consumers will continue spending as well.
Angela Merkel has been Chancellor of Germany since 2005. This past week may have been one of her busiest in the past 10 years. Merkel came to Washington D.C. to meet with President Obama on Monday. She had a clear position that arming the Ukrainian government was not going to bring about a cease-fire. President Obama kept this option open, but in the end supported the effort by Chancellor Merkel and French president Francois Hollande to broker a deal with President Putin of Russia in Minsk, Belarus. On Thursday, the main players announced a cease-fire starting on Sunday. (New York Times, February 12, 2015) “The peace deal reached Thursday for Ukraine, if it holds, would be a partial win for both Moscow and Kiev,” Merkel said. “I have no illusions. We have no illusions. A great, great deal of work is still necessary. But there is a real chance to make things better.”
With quantitative easing (QE) now in place throughout the eurozone, growth returning, deflationary fears fading and a revised cease-fire in Ukraine with the Russian-backed separatists, it appears that Germany can now turn its attention this week to negotiations with the new Greek government. Greece’s new prime minister Alexis Tsipras and his finance minister Yanis Varoufakis will soon discover that while Germany may be open to extending the terms of their bailout, they will not be able to negotiate forgiveness of their debt. This will play out in a very public forum over the next several weeks, but in the end I sense that Germany will drive a solution that is acceptable to its voters and will allow the recovery to continue.
I am writing this in New York City where we are having record low temperatures this weekend. Our colleagues and clients in Boston are being impacted by both record low temperatures and record snow falls. I have been trying to find a window to reschedule several client visits that were impacted by the earlier snowstorms, but each time we think we have a window, a new storm hits. I am starting to think that February will have to yield to spring before I can get rescheduled!