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Why a German Recession Could Hurt the Euro

Tuesday, 4 Sep 2012 | 1:59 PM ET
Sabine Scheckel | The Image Bank | Getty Images

A slowdown in Germany could make politicians there even more averse to a bailout for the neighbors, this strategist says.

If you're looking for robust economic growth, Europe is about the last place you'd go these days. The euro zone overall is in slowdown and Britain is suffering too.

So far, Germany has been a different story. In fact, its export-driven economy has benefited mightily from the unified currency. But "as we move into the fall season, German economy is showing clear signs of stress, the latest data on unemployment, retail sales and flash PMI readings all point to a marked slowdown in economic activity," wrote Boris Schlossberg, a managing director of BKForex, in a note to clients.

While it's not clear that Germany will actually tip into recession, it's worth analyzing what currency impact a real slowdown would have, Schlossberg says. And he thinks the situation looks rather iffy.

"Ms. Merkel has made concerted efforts to move Europe towards more structural cooperation," he says, but "if Germans decide to turn inward believing that their economic fortunes will be better off without the euro than with it, her efforts to lay a fiscal foundation under the single currency will likely fail and the euro will come under renewed selling pressure."

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