El-Erian: Is German Bad News Good News for Europe?

With so many understandably focused on Hurricane Sandy and its aftermath, few noticed this week's economic numbers out of Germany — a key part of the European puzzle. Yet the latest data releases could well prove consequential.

Reichstag Parliment building, Berlin, Germany
Martin Child | Photodisc | Getty Images
Reichstag Parliment building, Berlin, Germany

Germany is quite an economic success story. It is also the world's fourth largest economy, and its role in Europe is both central and critical.

So far, Germans have been immune from the mess around them. While other euro zone economies have experienced economic contraction, high unemployment and periodic financial scares, Germany has maintained exceptional stability — so much so that the unemployment rate even reached historic LOWS (yes lows) earlier this year. (Read More: Sovereign Credit-Default Swaps)

Most agree that a good part of Germans' good fortune is home grown; but not all.

For years, Germany has maintained fiscal discipline and implemented deep structural reforms. But it has also benefited from the weaker currency associated with its membership of the euro zone. And its borrowing costs have been lowered by all the "flight capital" coming into the country from struggling neighbors.

Yet it is not all this straightforward.

Some feel that Germany's success has undermined its ability to comprehend what other euro zone economies are going through. Consequentially, the collective response to the region's existential debt crisis has consistently been too little, too late.

Others disagree. For them, Germany's strength acts as an anchor of relative stability for the euro zone as a whole — both present and future. (Read More: Euro Zone Unemployment Hits New High)

This is where this week's data releases come in.

Germany's jobs numbers disappointed as unemployment rose by more than expected. Meanwhile, economic confidence numbers deteriorated.

These indicators confirm that German economic growth is weakening, and, most likely, will continue to do so in the months ahead. But it is not clear what this evolving economic turn in Germany means for the rest of Europe. (Read More: October PMIs Suggest Euro Zone Downturn Deepening)

Will it make Germans more insular or, instead, cause them to engage more constructively in a region-wide solution? We should hope for the latter but worry about the former, as it's essentially a toss-up at this stage.

Stay tuned.

Mohamed El-Erian is the CEO and Co-CIO of PIMCO, which oversees nearly $1.8 trillion in assets and runs the Pimco Total Return Fund, the largest bond fund in the world. His book, "When Markets Collide," was a New York Times and Wall Street Journal bestseller, won the Financial Times/Goldman Sachs 2008 Business Book of the Year and was named a book of the year by The Economist and one of the best business books of all time by the Independent (UK).