When it comes to Europe, we're all getting fed up of hearing about the problems in the periphery, and the latest disaster in Greece. But no one ever talks about Germany's economic woes.
That might seem an odd thing to say. After all, Germany is the country leading the bail-out package, and having its flag burned on the streets of Athens. Meanwhile, German chancellor Angela Merkel's appearances on the French campaign trail are boosting the re-election hopes of Sarkozy.
And it's true that Germany is in a better position than other eurozone countries. Unemployment stands at 5.5%, while the deficit is just 0.1% of GDP.
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But you shouldn't over-estimate Germany's strength. The economy shrunk by 0.2% in the last quarter. Growth in both manufacturing and services is stalling. And things may be about to get even worse.
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Germany's exports are under threat
Germany has always relied on exports to drive growth. The strength of the deutschemark, and the costs of unification after 1990, kept the sector in check. However, the advent of the euro made it easier to build up trade surpluses, because weaker countries like Greece and Portugal could no longer make their currencies cheaper as a way of competing with Germany.
By 2010, Germany had a trade surplus of $188.4bn, equivalent to 5.7% of GDP. The export boom helped to bring unemployment down from a peak of 11.5% in April 2005.
For this economic model to keep working, other eurozone countries had to keep buying German goods. To do so they ran up huge debts, both public and private, funded by lending much of which came from German banks. However, now debt levels in Greece and many of its peers have spiraled out of control.
That means things need to change. If the Greeks default and leave the euro (the best solution), then their new currency will be weaker. This will make their goods more competitive. But even if they stick with austerity, demand will suffer which will reduce the level of imports into Greece.
Either way, German firms will end up selling less abroad which will cut the surplus. Already exports are starting to decline, falling by 0.8% in Q4 2011.
German consumers have more debt than you think
The obvious solution would be for Germans to consume more boosting domestic demand. But this won't be easy. Contrary to myth, German households do borrow. Indeed, the household sector has a higher debt-to-disposable income ratio than Greece.
This is partly a legacy of the slow growth in the early- to mid-1990s - debt has only increased slowly since 2002. However, it still means that many will be looking to pay down debt rather than increase their spending. Indeed, consumer spending fell by 0.1% last quarter.
Consumers are also wary about the future. Although consumer confidence improved this month, the three-month moving average is still sharply negative at -23.3. This is well below historic levels.
Meanwhile, while Wall Street and the City have been rightly criticised for their role in the financial crisis, people forget that in many ways the German banks were even worse. A good case could be made that they made the most mistakes especially the state-run Landesbanks.
Although Berlin made vague promises about reducing the role of the public sector in the banking system, the Landesbanks still have a large exposure to Greek debt. While a formal default might help them get money back via their insurance, it would also force them to take losses which the German state would then have to cover.
Another key sign that the German economy is in no fit state to pull the eurozone out of recession is its weak rate of monetary growth. M3 grew by a relatively strong 5.8% year-on-year in December. But measured on a three-month annualised basis, the rate slows to 2%. And in December, the money supply actually fell.
Don't get me wrong. Germany is still one of the strongest economies in Europe. Its fiscal problems pale when compared with countries like Greece. Its institutions (apart from the public banks) are strong.
However, the point is, it is not immune from the area's problems, and nor can it save the eurozone from recession. Indeed, any economic readjustment is going to come at the expense of German firms which is one reason why Berlin wants to delay the inevitable.
