Mark Mardell's Euroblog

Living on love and air?

• Mark Mardell
• 31 Oct 08, 11:08 AM

Gigantic dull red frames, in effect monstrous cranes, glide smoothly back and forth along Hamburg's dockside, carrying containers that are destined to travel all over the world.

Weirdly, and rather irritatingly as I am recording a radio piece, this ballet of mechanical behemoths is almost totally silent. The fork-lift trucks in the yard behind make more noise as they lift the individual containers, making a satisfying clanking sound.

Hamburg is Germany's biggest port, and for the last five years Germany has been the world's largest exporter. The majority of Germany's exports go to other parts of the European Union, with France as the major importer. But it is also German precision machine parts that have helped China's factories boom. The United States is also a big market.

With the whole of the globe as the target market, a global financial crisis is going to hurt.

Hans Heinrich Noll of Germany's shipowners' association professes himself an optimist, but he says they will be squeezed from both sides. People have less money to invest and the rest of the world isn't buying as much.

"It's a matter of demand. The financial and economic crisis will result in less demand for German exports: goods like machinery and cars, and high-technology products," he says.

"We have the largest container fleet worldwide, so we are very much dependent on the fate of trade worldwide and in particular the United States, Europe, China.

"We are not yet in the position to estimate what the effect will be on the real economy of the credit crunch, but there are some indications that freight rates are dropping and the demand for charter ships is declining.

"We had a boom for many years and now we have a quick decline in a short period of a few months."

To make it worse, more ships are being built for the German fleet and will be ready in a couple of years' time, perhaps as the downturn reaches a peak.

Mr Noll says politicians have to tell people that everything will be all right, whatever they really think, because this is not an economic crisis but a psychological one, about how people feel.

If he is a strategic optimist Reinhard Hauke seems the genuine article. We're talking in his factory in Schleswig-Holstein, a couple of hours' drive from Hamburg, standing in front of several glowing cherry-red fire engines.

 Ziegler Feuerschutz Rendsburg supplies everything a fire brigade could possibly need, and this part of the company doesn't export but sells to nearby local authorities.

They started in 1891, making fire hoses. Now their biggest operation is fitting all the kit into the chassis of fire engines. Each one is customised. Two men are at work rewiring the dashboard, while another drills into place frames that will hold communications equipment and computers for an incident control vehicle.

Mr Hauke, one of the bosses of the company, says "I think we are going to have a recession for a year and then we will be out of it. Our production is full: our books are full for nine months."

He takes me through a store room, crammed with shelves full of hose pipes, uniforms, caps and boots. In the draw of one metal cabinet there are medals for gallantry, silver bronze and gold.

"I don't worry too much because the situation of our company is ok. The bankers, the regional bankers will give money, give credit." He's talking not about the state banks but banks owned by city councils. "I am sure I know we will get the money we need to invest," he says.

Then I meet that rarest of beasts these days - a cheerful economist. Some argue that German banks at the regional level have exactly the same problems as those in the US and UK, and are worried about their reluctance to take money from the government. Not Christian Dreger from the German Institute for Economic Research.

"We do not see a credit crunch in the data. All the data tells us there is not a serious credit crunch in Germany. In Germany the financial conditions of private firms are in good shape, and we have evidence that investment activity is more financed by profits than when compared to Anglo-Saxon countries, where credit demand plays a much larger role.

"In the UK and US you find a strong impact of the stock market or house prices on private consumption, but you do not find that for continental Europe, and especially not for Germany," he says, unable to suppress a chuckle.

"Of course we are in a period of economic stagnation at the moment, because of weakening demand from the United States. In contrast, demand from emerging markets like China and India is still quite strong and they have a similar weight to the euro area.

But after all this unexpected optimism I talk to shoppers - and the story is very different.

Even before the latest financial crisis Germany was suffering from consumers pulling their horns in, not spending as much. German businesses were crossing their fingers and hoping confidence would return, but now that looks very unlikely.

In the early evening I stop in a cheap supermarket on the outskirts of a little town in eastern Germany. Astra, and her son Christian, who looks to be in his early twenties, have only a few items in their trolley and are choosing with care.

"We're being hit hard here. It's never been good in this region and we've always had to count the pennies but now it's worse," she says.

"Nowadays I try to go shopping only once or twice a week, so that I don't get carried away buying little things that I don't really need. I make sure I go to the supermarket on the way home so I don't use any more petrol than I need to, and always shop around for special offers. I write a list of what I need: bread, butter, just stuff like that. I used to pop in every evening and get a salad and some fresh fruit. Not any more."

She explains that the family runs a little shop, selling flowers and trinkets.

"I wouldn't normally shop at this time of day but we've had to close our own shop because there are no customers. People have to spend their money on rent, food, maybe fuel for the car, so they don't have anything left over for the little luxuries."

Christian and his wife have two children, the youngest just five weeks old. They help in the shop but Astrid says they are all going to have to talk about whether this can go on. Although the government has brought unemployment down, there are parts of eastern Germany where as many as 30% are out of work.

"Mum's right," Christian says "Fewer and fewer people come to the shop. I have to think about moving to the West or a big city in the East where there's work and a better standard of living. I don't want to, this is my home. But you can't live on love and air. It would be nice if you could, but you can't."

Astrid holds aloft a round advent calendar, a big circle of purple and gold filled with milk chocolates, examining it carefully.

"Look at this, it's very beautiful... very different. Lovely. It's good quality: I bet it tastes good too. But 11 euros 99! I don't even have to think about it! Not this year."

She goes on: "Christmas this year the family will be together, children and grandchildren. We'll all celebrate and have dinner together. It'll be nice. But only the little ones will get presents this year."

The Germany economy is undoubtedly strong and better placed to resist some of the effect of the downturn, but I can't help wondering if a lot more people will be trying to live on love and air by this time next year.

This is based on a piece broadcast on Friday morning on BBC Radio 4's Today programme. One more to come on Saturday, on how Germany sees itself.

UPDATE: Interesting debate on Chancellor Merkel.

I wrote that Germany was the most powerful country in Europe, because it is the biggest economy, the biggest exporter in the world (see article above) and arguably the strongest economy in Europe. There is no doubt in my mind that Germany is the major player within the European Union, although its wishes can be defeated by some alliances. Merkel's skill is perhaps that she doesn't allow that to happen.

Clearly Britain has more impressive armed forces, but I am not sure how much power that gives us in the real world. Since the Falklands our fights have been those endorsed by Nato or the US. We have a seat in the UN Security Council, which Germany doesn't. But I think in general it is easy for the British to underestimate the power of other European countries, because their influence is under-reported. I don't moan about that, it is natural the focus is on our leaders, but the danger is that it makes it look as if they are the only players. It is not just journalists, of course: I was struck while researching this piece that, while I have read two books about the bloke who probably won't be US president, none of the three biographies of Merkel that I know about have been published in English. I am sure the publishers know what they are doing, and there isn't an audience, but who is the more important - powerful, if you like - politician?

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