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Interview: German economy to perk up again after short contraction in 2012: economist

01-05-2012 09:52 BJT

by Guo Xinyu, Zheng Qihang

BERLIN, Jan. 4 (Xinhua) -- German economy will avoid recession despite possible contraction in 2012 due to the deepening eurozone debt crisis, a leading economist said Wednesday.

"We expect 0.6 percent growth for Germany in 2012, which is clearly below the 3 percent growth in 2011," Ferdinand Fichtner, an economist with German Institute for Economic Research (DIW), told Xinhua. "But in the end, Germany is still the most potent economy in Europe in the current situation."

The German economy is expected to return to solid growth in 2013 and rise by 2.2 percent, Fichtner said, quoting DIW's forecasts for the new year.

Fichtner said the DIW, one of the country's top institutes, expects that the recession in the eurozone will deepen in the first half of 2012, which will prod the European Central Bank (ECB) to intervene in a stronger manner than it did previously.

The DIW forecast that the turmoil of sovereign debt markets in several eurozone countries would lead to an overall depression of the eurozone economy in 2012, but it would recover in 2013 and grow by 1 percent.

Commenting on the German government's role in solving the raging debt crisis, Fichtner said he believes Chancellor Angela Merkel would do everything it takes to save the monetary union because euro is an extremely important instrument for the German economy.

"We've seen Merkel supporting euro in the last two-and-half years despite the German population being relatively opposed to the monetary union," he said.

Fichtner warned of rising unemployment and falling demand if the crisis continues to be left unsolved, adding the slowdown of the German economy will pose a risk to the stability of the eurozone and its ability to solve the debt crisis.

"If labor market worsens in Germany because of the eurozone crisis, it will affect the support of euro in the German population, therefore the slowdown of German economy does pose a risk to the existence of euro," Fichtner said.

With the German economy in good shape, the German government is still in a very good position to negotiate on the details of the fiscal compact reached at last month's EU summit in Brussels, he said.

"The summit in December has done a lot of contributions to the European integration, and the most difficult thing...for European governments in the course of 2012 is to make the changes they have discussed in Brussels and make them real," Fichtner told Xinhua.

The EU summit produced an agreement to implement tighter fiscal rules among 26 of the 27 members. Britain stayed out of the agreement.

Fichtner ruled out the possibility of Germany's approval of issuing eurobonds among 17 eurozone members as a way of solving the debt crisis.

"We don't think the German government should accept the introduction of eurobonds and we don't think the government will accept it," he said.

Simon Junker, a research associate at the DIW institute, told Xinhua in a separate interview that many policymakers in Europe are trying to convince the market by introducing short-term oriented measures such as cutting governmental expenditures that directly affect the deficit now but also depress growth by saving too much.

"What we need is medium-term oriented measures in indebted countries...like Germany's labor market reform that took a couple of years to show effect," Junker said. "Taking some medium-term reforms right now will convince the market that there are substantial changes for the better in these countries."

"That will be sufficient to reduce the effects of the crisis and even solve the crisis," he said, warning that the debt crisis will have a wider impact and put the brake on global economy unless debt-ridden eurozone economies take medium-term reforms.

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Editor:Zhang Hao |Source: Xinhua

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