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The safest investor markets around - and Germany's role in making them that way

Germany, the world's mightiest exporter, is now facing big pressure to do what it historically hates - embark on a big round of fiscal stimuli. In other words, spending billions to counter the very rapid downturn in its economy.

Germany was pretty much the last to come to the bailout for banks party after Gordon Brown issued invites, lagging behind the other major European economies, before realising cash would have to be stumped up to prevent disaster.

The country is now faced with a similar dilemma - a choice of spending on a huge scale to kick start its economy or...waiting for a spate of serious deflation to gradually and painfully raise German competitiveness ready for the day when importing nations start sucking in German products again.

But it now looks like pressure from within the EU - and the German electorate (an election approaches) - will force it to forget about doing nothing or very little because they are no longer viable options.

The argument for not pumping money and investment into the system has always been that Germans don't spend when you give them cash, they save it. This is unlike, say, the Brits who, if you give them £100 will willingly blow £150!

There is some truth in this because the cause of Germany's recession is not a collapse in domestic demand, which has never been key to driving the German economy; it's been a collapse in demand for its exports, from among others, those profligate Brits who can no longer deal out their beloved bits of plastic like packs of playing cards. Instead, for them, it's payback time.

The German government favours piecemeal measures to counter its recession - like those passed by the government a couple of weeks ago, and said to be worth a paltry €12 billion.

But, right now, Germany looks like Europe's China. Yes, it's exporting higher grade products than China tends to, but, essentially, it sells to the world and so needs customers. China does too. But the customers - the US being dominant - have run out of cash, or at least credit.

This imbalance is what belies the idea that one part of the world can be immune from another's recession. It's also what is meant by imbalance and a redrawing of the economic landscape. Giant exporters also need to consume on a far greater scale.

The fact is, things, ARE likely to change because the world has changed dramatically - mainly simply because the severity of what has occurred and what still can has forced politicians to do things differently.

This severity is why Germany ultimately gave in and bailed out its banks.

It's also why pressure is going to continue to rise for Germany to do more to stimulate its domestic economy, rather than just wait while its customers take measures to stimulate theirs.

And this is why Germany will soon start spending on a scale that will be vital to us all. It will have no choice.

All this matters a lot. Not just to Western Europe, but to the smaller, developing economies in central and Eastern Europe. Germany is a key customer. It imports - mostly components for its own exports - and it invests in CEE.

It also matters because confidence in the Euro, and linked currencies - which has no unified political basis - ultimately revolves around the leadership and state of economic health of the Eurozone's economic giant, Germany - by far the biggest economy in the Eurozone.

It matters too because it looks very much as though the EU is about to launch a co-ordinated aid spending programme.

Separately, the European Commission plans to 'invite' 27 EU members to launch big fiscal stimulus packages. It's thought that the 27 countries will be asked to stump up 1% of their GDP as part of a European-wide stimulus package worth about €130bn in all. It will be crucial that Germany comes to this party without delay.

And the EU is increasingly concerned about protecting its economically weaker members - essentially those developing economies in CEE that rely on high GDP growth to provide momentum to their much smaller economies and who also need cash - loans and investment - to finance that growth. To get that they need, more than anything, to inspire confidence.

It seems clear that - after its bailout of Hungary - the EU will not allow any smaller member (regardless of whether they are in the Eurozone) to go into meltdown. Period. The contagion effect would be too severe.

And this is a clear indicator of the power of EU protection, for these developing economies AND for those looking at the undoubted long-term allure of investing in them.

They have high growth - but are they secure, will there be a currency run, an economic meltdown and so on? We have already had an answer to this with the Hungary episode.

Now we have further proof - another example of the EU's determination.

The lion's share of a big EU aid package will be aimed at central and Eastern European countries.

There can be no clearer signal to the markets that the EU will do whatever it takes to maintain stability, which will be excellent for building business investor confidence. Great too for individual property investors looking to pick up distressed seller bargains in these markets.

No-one is immune to the recession that's underway. All economies are interlinked - but some will fight back more effectively than others by taking the dramatic steps needed.

The EU and the ECB - after a spate of dithering about inflation worries and being reluctant to cut rates - now seem to be driving a real agenda forward.

The turning point was coming to the aid of Hungary.

This is why Germany will step up to the plate again - just as it did with its bank bailout plan. Maybe it's been a little slow to move, but it will act because it has to.

And, ultimately, this co-ordinated EU effort to stimulate domestic growth and to protect its smaller members (where the highest growth is still to be found) will make those smaller economies some of the safest and most attractive investor markets around.

POSTED BY ROBIN BOWMAN ON THU 20TH NOVEMBER AT 13:11 GMT
TAGS: Property Investment, Germany Property


Daniel Peacock

Daniel Peacock

Our Editor since 2009 has written for many top publications and had work printed in the national newspapers with opinion based on his own successes in property.

Working alongside some of the industrys biggest names, Daniel offers a fair balance report on what the property market has to offer in both the UK and Overseas.

 

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