FOR a moment in the spring, the existence of the euro seemed under threat. Strange, then, that during those weeks of deepening crisis, businesses and consumers exchanged euros for goods and services much as they had done since the currency was introduced. Indeed the euro zone's economy was quietly expanding. Forecasters reckon that GDP grew at an annualised rate of around 2% in the second quarter, a decent number by European standards.

Fittingly for the country that gave most to bail out the euro zone, Germany did rather better. Its GDP growth rate may have been 4% or more. Business confidence in Germany certainly looks perkier. Orders for factory goods rose by a quarter in the year to May. The surge in new business has been good for jobs. In contrast to the trend in the rest of the euro zone, unemployment in Germany has fallen lower than even before the financial crisis. The job market has been helped by a short-time working scheme and flexible hours (see article). Many of the workers whose hours were cut have been quickly drawn back into full-time work.

Such figures might spur a new, if milder anxiety: that Germany's economic ties to the euro area are weakening even as its financial ties are tightening. Germany's revival has been built largely on exports. Having sold as much as they could to rich-world countries, German companies are looking for fresh sources of growth in Asia and Latin America. “German firms have squeezed the euro zone like a lemon and then thrown it away,” says Marco Annunziata, at UniCredit. Germany's bent for engineering fits with the demands of its newer customers. Industrialising countries, such as China and Brazil, are valued clients of firms that supply power plants and other kit for big infrastructure projects. Smaller producers of capital goods have had a rebound in demand, according to VDMA, an industry group.

A bigger surprise is how well German cars have been selling to well-to-do consumers in emerging markets. Sales of luxury Mercedes cars to China rose by 120% in the first six months of the year, compared with the same period in 2009. Sales to Brazil, India and Russia were up by 70-80%. China is now the main market for the Mercedes S-class, a car with a price tag that is prohibitive for most rich-world consumers. Other German carmakers, such as VW and BMW, are also living well off Chinese demand. Many car plants have returned to full capacity far sooner than had seemed likely just a year ago.

Germany's shift away from European markets started long before recession hit. By 2008 exports of goods to the euro zone accounted for 17% of German GDP, compared with 23% to countries outside it, says Julian Callow at Barclays Capital. Financial tensions within the euro zone may be further strained if Germany's trade ties with the rest weaken as its economy forges ahead. But the currency itself may help keep the gap in growth rates tolerable. The euro's fall in recent months is less of a boon to Germany than it is to other countries. A recent study by the European Commission showed that demand for French, Spanish and Italian exports is far more sensitive to changes in prices than demand for the niche capital goods and luxury cars that Germany produces. Italy benefits more than twice as much as Germany from a falling exchange rate.

An interactive guide to the EU's debt, jobs and growth worries

That may be why countries that bond investors are most wary of have managed to grow at all. Business-confidence indicators from Italy are grounds for cautious optimism. Ireland's GDP rose by 2.7% in the three months to March, despite a weak domestic economy, thanks to surging exports.

The cry from America is that the euro zone is living off the spending of others and adding little to global demand. The retort from Europe is that its upswings typically begin with exports. Eventually firms feel confident enough to invest and to hire. And when jobs are created, consumers start buying too. But that sequence cannot be relied upon when much of Europe is weighed down by consumer and corporate debt. Only Germany has a real chance of making the transition to more balanced growth. Some firms are already reporting capacity constraints and skill shortages. Even so, a broad recovery in Germany may yet be thwarted by weak banks and by thrifty consumers (see article). The recent slowdown in China will hurt exports, too (see article).

German firms seem almost indifferent to weak consumer demand at home. Their mantra is “we will always find someone to export to.” The flaw with this strategy is that Germany must still find a home for its surplus savings. One reason why its banks are ailing is because they made so many dud loans to spendthrifts in America, Spain and elsewhere. China may be a more solid bet, says Thomas Mayer at Deutsche Bank, because of its large population and cash reserves. German firms will hope there is more juice in these lemons than the last lot.



