EU periphery may be second East Germany, warns LSR

Germany’s policy towards the eurozone periphery will land it with similar liabilities to its integration of East Germany, warns Lombard Street Research (LSR).

A report from LSR warns that the spreading eurozone crisis will demand an over-reliance on Germany it can ill afford to supply.

Charles Dumas, an economist at LSR, argues that the four Club Med countries —Spain, Italy, Greece and Portugal—are in worse economic shape than Ireland and will require infinite subsidies from the European Economic and Monetary Union (EMU). (article continues below)

The likelihood of defaults is expected to led to negligible growth over the next 10 years.

Dumas argues that both German and European growth will depend on German consumer spending but that Germany’s recent recovery has already raised inflationary pressures.

An artificial restraint of its labour costs along with global inflation has boosted cost-push inflation for Germany, LSR says. Coupled with the subsidies required for the Club Med countries, this stands to discourage consumers.