Drop in Germany's exports signals stalling eurozone economy

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[The] "doom loop" [of German trade surplus with its European partners] is coming to an end. Some of the reasons for that are depressing; the hard-hit economies of southern Europe can no longer afford to import so many German goods. Despite very modest growth in the German economy, estimated at 0.1 percent this quarter, the eurozone as a whole is in recession, contracting for six quarters in a row.

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For most of this recession, Germany had been making up the shortfall in its exports to Europe by exporting much more to China, Russia, Brazil and other emerging markets. But they are slowing appreciably.

Above all, China is slowing is the massive overcapacity China faces in its steel, cement and shipbuilding industries mean that it will be some time before China is again in the market for Germany's advanced machine tools and manufacturing systems.

Without Germany, the rest of Europe is in grim shape. The latest prediction of the International Monetary Fund sees a worse than expected recession this year and very little growth next year.

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This may help ease the euro crisis by ending the previous pattern of massive German trade surpluses with its European partners but it does so at the cost of savage unemployment and bankruptcies. Europe is shrinking its way back into shape.