Europe has a problem and it is called Germany. The crisis that has bedevilled the single currency area for the past five years started with the smaller countries on the eurozone’s periphery: Greece, Ireland, Portugal. Then it moved to the bigger countries of Southern Europe: Spain and Italy. Next the malaise spread to the second biggest economy: France.

All the time, though, the sense was that Germany – the powerhouse of the eurozone – was immune. Exports from the factories of Bavaria and North Rhine-Westphalia were booming. Business confidence was high. Growth was solid. While the core of the eurozone remained secure, there was nothing really to fear.

That was then. The story today is of waning confidence and drooping factory orders. The snapshot of German manufacturers shows that for the first time in more than a year industry is contracting rather than expanding. A temporary blip caused by the tension in Ukraine? In part, yes. Sentiment has clearly been affected by fears that Russia could decide to annex eastern Ukraine, while sanctions have affected exports.

But that’s not the whole story. German exports were falling even before the escalation of the Ukraine crisis, and that was mainly due to falling demand from the rest of the eurozone. At Berlin’s insistence, domestic demand has been squeezed across Europe. Everybody has been urged to cut costs, become more competitive and adopt the German model of export-led growth.

But if Spanish, Italian and Portuguese consumers lack spending power, they can’t afford a spanking new BMW or a Miele washing machine. That means weaker German exports, lower German growth and in turn less demand for Spanish, Italian and Portuguese exports.

All of which explains the current state of the eurozone: a faltering recovery that poses the risk of a triple-dip recession and deflation. Growth stagnated in the second quarter this year and is on course to be no better in the third. Inflation, according to the flash estimate published this week, stands at 0.3%.

The experiment – German designed, German engineered and German exported – with austerity has failed. The eurozone is not cutting its way back to prosperity. It is cutting its way towards being the new Japan.

If policymakers in Berlin were willing to accept this, they might be prepared to see the sense in easing up on the spending cuts and wage reductions. They might even see virtue in a modern Marshall Plan for Europe, under which Germany would run down its budget surplus in order to boost spending not only in its own economy but in the rest of the eurozone.

But that is not going to happen. Instead, Germany will belatedly and begrudgingly drop its opposition to the European Central Bank using full-strength quantitative easing – buying government bonds to create money – to try to kickstart growth. Expect hints of QE to emerge from the ECB on Thursday.