Germany: the DAX dives


Germany was the powerhouse of central Europe: the engine which drove surrounding economies as well at its own. But since the bail-out confusion and mayhem of recent weeks, German markets appear to be heading only in one direction - south.

Now its key DAX stock index has plummeted to well below the level of London's FTSE 100 for the first time in years. Is it as a result of slow orders from China, confusion at the heart of the Merkel-led government, or funds seeking a safe haven?

Axel Weber resigned as Bundesbank president in April, and now Der Spiegel reports that "the chief economist of the European Central Bank, J├╝rgen Stark, resigned on Friday, apparently over his opposition to the ECB's bond-buying program. The loss is embarrassing for Chancellor Angela Merkel."

Greece is being coached into an orderly default, it appears. This just as the Germans are prevented by their own Constitutional Court from assisting in further bail-outs of Greece or any other EU state. Der Spiegel claims "the Euro's future will decide Merkel's future." So an uncertain future for the Berlin government, yet this doesn't explain entirely why the DAX is being marked down so sharply. 

Bloomberg reported on September 10 "German stocks slumped to a two-year low as three coalition officials said Angela Merkel's government is preparing plans to shore up the nation’s banks in the event that Greece defaults. Deutsche Bank AG and Commerzbank AG tumbled more than 7 percent, tracking a slide in financial shares across Europe. Porsche SE retreated 14 percent as Volkswagen AG said its merger with the sports-car maker can no longer be completed by the end of the year." Bloomberg continues: "The probability of a mild recession has increased," Andrew Garthwaite, the head of global equity strategy at Credit Suisse Group AG in London, wrote in a report. “Europe lacks both political and economic leadership.”"

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