Balanced budget or Europe?

The economic prospects for Europe's largest economy have become far worse than they used to be some months ago. Germany's leading economic think tanks have joined others in revising their annual growth forecasts for the country, lowering their prediction to just 1.3 percent of growth this year and 1.2 percent in 2015.

That's only the latest bit in a string of bad news of late, with German exports having taken a tumble, and so have industrial orders and output. The figures show a dip to levels not seen since the peak of the global financial crisis in 2009. Particulary affected has been the the country's machine tools and equipment sector.

Simultaneously, the International Monetary Fund (IMF) has warned of a new global crisis and also lowered its growth forecasts for the world and Germany.

Barometers gauging confidence levels among executives, analysts and private households have also been pointing downwards for months on end.

So far, the German government has always reacted to weaker economic trends by urging fellow Europeans to tighten their belts even more and to speed up their reform policies. What German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble have been trying to say to countries such as France and Italy has been: Follow the German example and eveything will end well!

But now it appears that Germany's export-oriented economy can no longer expand, while fellow European nations are in a bad state economically. After all, these nations buy around two thirds of overall German exports.

There are serious concerns over other key markets, too, for instance China or Brazil, but there's little Germany can do about it. Things look different with the crisis in Europe. Only, Germany doesn't seem to want a policy change.

Saving money seen as a cure-all

The German Chancellor has particularly been in favor of what might look like more suitable tools in support of other nations. Merkel's been against risk-sharing eurobonds, just as she's been against a joint bank deposit guarantee scheme with regard to a full-fledged banking union.

She's also rejected French and Italian calls for a less rigid austerity drive and proposals by pundits to invest much more in Germany.

But larger investments in infrastructure and education are badly need here. In the early 1990s, public and private investments combined accounted for almost a quarter of the country's economic output. That share, meanwhile, has dropped to 17 percent, far less than the average in OECD member countries.

Germany is living on past investments; and that doesn't bode well for the future, with Chinese companies now building what they used to buy from Germany, including machinery and equipment.

Balanced budget or Europe

But Finance Minister Wolfgang Schäuble is sticking to his favorite project: coming up with a balanced budget as his way in encouraging neighbors to emulate the Germans.

In their Autumn Outlook, experts from Germany's leading economic institutes don't mince their words when calling the balanced budget "a prestigious object," which "is currently not appropriate for economic reasons." French President Francois Hollande must have applauded when hearing this.

Schäuble, for his part, thinks it would be foolish to change course. Yes, fresh borrowing should not be agreed to lightheartedly. But it would be equally wrong to ignore the current signs of a new crisis and carry on, regardless.

There's good reason to depart from the dogma of austerity, following years of economic stagnation, which has produced 26 million jobless people in the European Union, weakened social systems and strengthened nationalist parties across the Continent.