A gloomy forecast for the sales of a German automaker portends the possible spread of Southern Europe’s economic crisis to other parts of the continent — and the world.

“The E.U. has made Europe a much more cohesive economy, which is good when things are going up,” said Carl B. Weinberg, chief economist of High Frequency Economics in Valhalla, N.Y. “But when things are going down the multiplier is very strong. An outgoing tide lowers all ships.”

The problem comes when demand in global markets for Germany’s export products declines due to recession in those countries. Perhaps the spread of the crisis will tempt leaders in areas as yet unaffected by the crisis to abandon the austerity policies that are maintaining, deepening and spreading the European recession.

In Germany there are few overt signs of crisis. Unemployment stands at 5.4 percent, compared with an average of 10.9 percent across Europe. Together, Germany and the other 26 nations of the European Union represent the world’s second-largest economy. As a bloc it is the single largest trading partner with the United States. Further delay in Europe’s recovery, caused by a German recession, would seriously inhibit growth in the United States, Asia and Latin America.

— Posted by Alexander Reed Kelly.

The New York Times:

The region’s overall economic weakness as well as slowing demand in China and other big markets for German exports of consumer products, cars and sophisticated machine tools, industrial robots and construction equipment are finally taking their toll.

Just one more consecutive quarter of shrinking economic output and Germany would officially enter a recession. The same is true of Belgium, France, Luxembourg, Austria, even Sweden and Finland. The Netherlands has already suffered two quarters of declining gross domestic product.

… The problem for the rest of Europe is that any hope for recovery is pinned on a robust German economy. Companies in Spain and Italy have depended on German demand to compensate for a collapse in consumer spending in their own countries.

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