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In view of ING analysts, the eurozone economy could benefit from a German recession if it opened doors to more anti-cyclical fiscal policies.

Key Quotes

“There is also a more worrisome scenario possible. If the German government doesn’t budge and it sticks to fiscal strictness and structural reforms, seeing recessions as a kind of religious healing process for structural deficiencies in an economy, the pressure increases on the ECB to step in. It would also cause ‘euro risk’ to increase significantly. It is hard to see many eurozone countries having a strong appetite to go through yet another round of austerity measures and structural reforms. The centrifugal forces in the eurozone would strengthen.”

“This would not only cause friction in southern or peripheral eurozone countries. Against the background of the latest aggressive attacks and controversies surrounding the ECB’s latest policy measures, even looser monetary policies by the European Central Bank in reaction to fiscal inactivity would worsen the adverse effects on savers, banks, insurance companies and pensioners in core eurozone countries. Eventually, what is now just negative rhetoric about the ECB could turn into fuel for a eurozone break-up debate in core countries.”

“The only way to keep the genie of yet another euro crisis in the bottle is to rethink the role of fiscal policy in the eurozone. Not in an irresponsible, unsustainable way but in the context of an economic debate on how to increase potential growth throughout Europe, and hence the level of the neutral interest rates. The current slowdown and a possible recession in Germany will only speed up the debate. The key to whether it is a recession made in heaven or hell lies in Berlin.”