The German economic recovery many expected in 2005 failed to materialize. The latest figures released by the Federal Statistical Office in Wiesbaden are sobering -- GDP in Germany grew by only 0.9 percent last year. The news has left some analysts struggling to find new arguments that an upswing is inevitable and others scrambling to dampen false euphoria.

Most German economists are still very optimistic. Pundits from both the Deutsche Bank and Deka Bank look forward to bright prospects this year. The German Chambers of Industry and Commerce (DIHK) has revised its forecasts for 2006 upward, expecting the biggest upswing in five years, with 2 percent growth. The German government makes the more modest claim of 1.4 percent. Those who argue in this vein point to statistical aberrations, such as the fact that all holidays of the last season were on the weekend. Barring differences of this kind, 2005 would have shown the same 1.1 percent growth rate of the previous year.

Still, the interruption of a growth trend is demonstrative of the structural weaknesses of the German economy. The world's largest exporter seems overly dependent on exports. That makes it something like a runner whose heart is in less good shape than one might think. Five million are unemployed and few would deny that in the face of both public and private sector strikes, Germany's labor force is frustrated and more likely to save money than spend it. All this combines to mean that higher oil prices and reduced American consumption left an export oriented economy in a tougher place. Only the construction sector helped matters along, as has so often been the case in post-unification Germany.

The Financial Times Deutschland is unfazed by the new statistics, commenting that "the mood in the country is not better than the actual outlook, as skeptics are now maintaining. It is, in fact, the mood which is worse." The paper points to broad and consistent reports of optimism emerging from almost every sector, from directors of purchasing, mid-size firms and analysts. The paper quotes polls that find even consumers more hopeful than they have been in years. "The mood shows just how much the prospects have strongly improved. German exporters have increased their worldwide sales, which are already high anyway, by one-third. Germany's industry, pronounced dead not long ago, has produced 10 percent more than during the crisis of 2003." The paper sees that domestic demand for industrial production has also increased by 10 percent over the last two years. The key factor, according to the paper, is that recent weeks have seen rising numbers of socially insured jobs for the first time in five years.  All in all, the paper concludes, Germany is experiencing an upswing in the "classical pattern."

The Berliner Zeitung quotes Commerzbank's chief economist Ralph Solveen, who says: "Given a zero growth in the last quarter of 2005, growth forecasts of 2 percent are very ambitious indeed." Given that the last quarter is always very important for the next year, the Commerzbank is sticking to its forecast of 1.5 percent for 2006, but not without misgivings. Solveen's main concern is the continuing weakness of private consumer spending, with few expectations of higher wage agreements this year. While Solveen acknowledges the growth of socially insured jobs, he doesn’t expect "miracles" in this regard.

The left-leaning Die Tageszeitung blames the impending World Cup in Germany for the general euphoric climate. It questions the thesis that Germans comprise the nation of "Angstsparer"  or scared savers, who only have to get themselves into a better mood for things to get going. Instead the paper points out that, for the first time since 1992, wages for all employees together shrunk by 0.5 percent. This further damages private consumption. The paper thus concludes, "economic experts should actually be overjoyed that the union IG Metall is fighting tooth and nail for higher wage agreements. But instead they are still hoping for a boom -- until it is too late."

The financial daily Handelsblatt looks at wider problems such as reduced consumption in the United States, which is hurting German exports along with the Iran crisis and the related higher oil prices. Also worrying for the paper are the current wage fights in the civil service and in heavy industry, which are being fought solely on the great expectations of growth for the current year.  The business paper cautions with a reminder of similarly euphoric debates at the start of 2005. Given the odd juxtaposition of hope and despair, the paper urges Chancellor Angela Merkel to at least contain all the various risks by pushing through reforms including the pension reform, health care reform and an overhaul of the unemployment compensation reform approved by former chancellor Gerhard Schröder's government that has turned into an expensive fiasco. The paper sees all of these already as endangered projects early in Merkel's government. Finally, the paper urges Merkel to use the improved tax revenues expected this year to eliminate plans for an increased sales tax, which by causing more damage to weak public consumption may prove the straw that broke the camel's back.

-- Anjana Shrivastava
2:30 p.m. CET

Isolating Hamas?

Few would argue there are many options left in the Middle East. The international debate revolves around the question of whether there are any left at all. The German press has reacted with caution towards claims by the New York Times that the US and Israel are developing an isolation strategy towards the newly elected Hamas in Ramallah. Although White House spokesmen deny this, Israel is clear that it intends to keep financial pressure on Hamas, while allowing the defeated Fatah a chance to regroup and clean up its act.

German newspapers in general find that this policy would risk escalation and the deeper involvement of states like Iran and Syria. The German government, however, seems much more on the same wave-length as the Americans and Israelis. Foreign Minister Frank-Walter Steinmeier, visiting Israel and Ramallah this week, stuck to the lines recently drawn in the sand by German Chancellor Angela Merkel, namely that continued EU financing depends on Hamas "renouncing violence, recognizing  Israel and respecting  previous agreements." This was seen by Israeli Foreign Minister Zipi Livni at a common press conference as a recognition that this is the correct time to demonstrate the risk of isolation which the new Palestinian parliament runs if Hamas continues on its stated course. France, on the other hand, is continuing an independent Paris-Moscow strategy, an axis minus Gerhard Schröder's Berlin. Prime Minister Dominique de Villepin is asking Russia to put diplomatic pressure on Hamas without going so far as to isolate it.  

Currently on a trip to Egypt, Hamas leader Mahmoud al-Zahar said the Palestinians do not need "satanic" money, referring to the close to $1 billion that the Palestinian Authorities receive yearly from the European Union and the United States.

Departing Foreign Minister Nasser al-Kidwa of the Fatah appealed to German Foreign Minister Steinmeier to preserve a sense of diplomatic grey tones in a world increasingly reduced to black and white. He said that Hamas must be given time to develop a politics of pragmatism. But Fatah seems to be pursuing its own policy of internal isolation, passing a law this week allowing President Mahmoud Abbas to name judges to the Supreme Court without the permission of the parliament about to fall into the hands of Hamas.

Moreover, the Frankfurter Allgemeine Zeitung reports that outgoing Palestinian negotiator Saeb Erekat told Steinmeier that if the Hamas doesn't accept all the points of Fatah President Abbas' moderate election program, there will inevitably be a constitutional crisis in Ramallah. In an opinion piece, the paper laments that there are few solutions in sight at all. "The extent to which one can influence the Hamas through financial pressure is unclear," the paper writes. "The Hamas has other potential donors in the form of Iran and Saudi Arabia. Russia, which belongs to the Mideast Quartet, wants to try to influence Hamas by diplomatic means, and France wants this as well. Visits to the Mideast at the moment are difficult missions." The paper concludes, simply, that Steinmeier's job is an unenviable one.

The Süddeutsche Zeitung thinks that since talks with the Hamas are as inevitable as they were with Yasser Arafat's Palestine Liberation Organization, that one should begin talks now rather than besieging the young democratically elected parliament. "Hamas won because the governing party Fatah had failed -- before the very eyes of the financiers, the Americans and Europeans, and in part aided by the actions of Israel. Naturally, Hamas must give up violence and acknowledge Israel's right to exist. But one has to offer something in return: like an Israel with the 1967 borders." The paper goes on to criticize the plans described by the New York Times, which would result in letting "Hamas starve at arm's length." Instead, the paper makes the plea for Israeli-Palestinian talks to start immediately. "Time cannot be wasted, nor can human life be risked."