Germany is dragging Europe’s economy down — and that’s great for crypto

In the latest episode of Macro Markets, Cointelegraph analyst Marcel Pechman discusses the recession in Germany, Europe’s largest economy. According to a recent headline in The Wall Street Journal, “Germany is dragging down Europe’s economy.“ The article explains how the country heavily depends on manufacturing, which has been hurt as foreign governments rush to protect domestic industries.

According to Pechman, Germany’s gross domestic product (GDP) ranks fourth globally, 42% bigger than France’s GDP. Moreover, manufacturing is responsible for nearly 20% of its economy. To make things worse, the manufacturing industry in Germany employs 10% of the workforce.

As the surplus (exports minus imports) reached its lowest level in 23 years, it is causing a GDP contraction for Germany, which affects the government’s capabilities to pay for its costs, including pensions and public workers. Pechman then shows how the German government threw gas on the fire with recurring interventions to save the manufacturing industry.

Pechman reminds us that the euro has a mere seven-year head start versus Bitcoin (BTC) and that an eventual weakening of Germany represents a considerable risk for the European Central Bank and the euro. Consequently, regardless of how the United States dollar is doing, the euro represents a more imminent risk and is potentially positive for cryptocurrency adoption.

Shifting the focus to the Asian market, Japan’s central bank has raised the interest rate buyback cap to 1%. According to Pechman, the bank is trying to convince the markets that it is not raising interest rates, but that’s precisely what happened. The Japanese economy has been stagnant for the past 20 years, and its debt ratio has been above 200% of the GDP since 2010.

According to a Bloomberg article, “Japanese investors are major holders of US government bonds and own everything from Brazilian debt to European power stations.“ According to Pechman, the rest of the world is concerned that Japan will have to offload its holdings in bonds, stocks and other assets, likely causing a crash in those markets.

The conclusion is that global economies are strongly interconnected, evident after the U.S. helped Europe during the banking crisis of 2023 by offering special liquidity agreements. Pechman says that at some point, the trust in this system will break, regardless of the trigger. That’s why positioning in Bitcoin makes sense, even though it is impossible to predict the timing of those events.

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