IMPACT OF EURO CRISIS ON GERMAN ECONOMY AND INDUSTRY

Submitted By
Literature Review Binish Rana Ayesha Asghar Zunera Zaheer Nida Ghias Introduction

Submitted To
Sir Asim Faheem
Hailey College of Commere

Mehwish Intizar Conclusion Samar Fatima

Impact of Euro Crisis on German Industry

Literature Review
German companies are becoming more worried about the euro zone debt crisis; the German economy has been vigorous, though it seemed unexpectedly resistant to the hard effects of Europes financial crisis. German companies believe the euro crisis has damaged their predictions for growth in 2012. According to new figures Germanys exports fell by 1.7 percent in April in comparison with March. The fall, while expected, was twice what most economists had forecast. It marks the first time in 2012 that German exports have dropped. In total, Germany exported 81.7 billion ($102 billion) worth of goods in April. It conceals that Germany has affected by the euro crises. The debt crisis has been a load for almost all of Europe, but Germany continues ambiguous to the worst economic side-effects. Gross domestic product jumped significantly in the country between July and September, decrease by 0.5 percent. For a long time, the German economic powerhouse seemed resistant to the effects of the European debt crisis. In recent weeks, however, economic indicators have begun to suggest that dark clouds may be gathering over Germany. The purchasing managers' index composed by the research institute Market based on a survey of 1,000 firms fell by 0.8 points to 48.5 percent the index for the whole of the euro zone was 46, the same as last month and the lowest level in three years. Unemployment in Germany going highly from many months due to the risk of crisis increases day by day the major reason is painful labour. The labour market showing the sign of weakness and industry of Germany destroy slowly. Another reason of the Germany industry destroy because of great investment in industry from last few years and at once Germany improves the rank against the Europeans and German company believes that euro crisis badly impact the German economy. And suddenly in the euro rate which affects the labour market of Germany adversely and industry declines. Economists focus on Germanys role in the euro zone is due to difficult competition in the economy. The European common currency has come under pressure from large national debts and the effects of the global financial crisis, ultimately requiring a rescue close to a trillion Euros. German manufacturers were at the forefront of the downturn. The

financial ministry given the report which shows that tax rate decreases first time sudden fall in taxes also badly effects the economy.

Introduction
Euro Crisis has been start with the Euro Currency adoption by other countries like Spain, Italy and Portugal etc. and increasing bubble of public debt which has initiates the Euro crisis in Europe and it evolves globally and ultimately reaches German economy. This hits the German Industry with a significant effect. According to a report written by (Sabnavis & Paradkar, 2011), the Euro zone debt problem is likely to remain a concern in the near future. Further, the European banks withdrawing credit in order to shrink their balance sheet would deepen impact of the debt crisis on the other economies. And near zero level interest rates are to continue in the advanced countries in the immediate future. Rising fiscal deficit in US and uncertainties over the economic conditions in most developed countries is adding to the worries. In another report which is written by (Dadush, et al., 2010), While ballooning public debt may be the clearest manifestation of the Euro crisis, its roots go much deeperto the secular loss of competitiveness that has been associated with euro adoption in countries including Greece, Ireland, Italy, Portugal, and Spain (GIIPS). The sequence of events that led to the secular loss of competitiveness is depressingly similar among the GIIPS countries: The adoption of the euro was accompanied by a large fall in interest rates and a surge in confidence as institutions and incomes expected to converge to those of Europes northern core economies. Domestic demand surged, bidding up the price of non-tradable relative to tradable and of wages relative to productivity. Growth accelerated, driven by domestic services, construction, and an expanding government, while exports stagnated as a share of GDP, and imports and the current account deficit soared amid abundant foreign capital.

 The result was that indebtednesspublic, private, or bothsurged. And on the other hand another major problem initiator is that Italy and Portugal gains boom in its economy in starting but Greece, Ireland, and Spain gains economic growth for long-decades instead of Global Crisis in the world. The single monetary policy of the euro was very flexible for such countries because they were following prominent inflation rate and very competitive loss but this policy was very strict for larger economies like Germany, because its exports are becoming more and more strong while its local demand was becoming low and unit labor cost was increasing than Greece, Ireland, Italy and Portugal.

Conclusion
German companies believe the euro crisis has damaged their predictions for growth in 2012. According to new figures Germanys exports fell by 1.7 percent in April in comparison with March. The fall, while expected, was twice what most economists had forecast. It marks the first time in 2012 that German exports have dropped. It conceals that Germany has affected by the euro crises. The debt crisis has been a load for almost all of Europe, but Germany continues ambiguous to the worst economic side-effects. In recent weeks, however, economic indicators have begun to suggest that dark clouds may be gathering over Germany.

Bibliography
Dadush, U., Aleksashenko, S., Ali, S., Eidelman, V., Naim, M., Stancil, B., et al. (2010). PARADIGM LOST THE EURO IN CRISIS. Carnegie Endowment for International Peace. Sabnavis, M., & Paradkar, S. (2011). IMPACT OF EURO CRISIS AND GLOBAL SLOWDOWN ON INDIA. Care Ratings Professional Risk Opinion .

News Sources
Euro crisis 'domino effect' fears hit German confidence by Klaus Wohlrabe

http://www.telegraph.co.uk/finance/financialcrisis/9349352/Euro-crisis-domino-effect-fears-hitGerman-confidence.html

 Euro Crisis Reaches German Industry from Der Spiegel http://www.spiegel.de/international/europe/euro-crisis-enters-crucial-phase-before-next-week-ssummit-a-840398.html