November 28, 2007 | posted by Michael Baxter in IABN |

As you may know, while the US totters and the UK starts watching its footing with trepidation, Germany seems to be returning as a major player on the world stage.

It has now pretty much paid off the cost of re-unification, and it has quite impressively managed to maintain its share of international trade, at a time when China has been muscling in on other countries’ turf.

The thing about Germany is that its recovery has been built on production. On producing and exporting its way to growth; the Germanic consumer has not gone out and spent like his Anglo Saxon cousins.

For example, yesterday saw the release of the latest survey on German business confidence, and the headline index is up. That was against expectations, too.

Okay, there are signs of an easing up. Business expectations, for example, are down to the lowest level since August 2005 but, even so, considering the doom and gloom flooding out of the US, it’s really pretty good.

But, there is a cloud on the horizon. The cloud is inflation: it shot up in November, to 3.3 per cent, the highest level since the German CPI figures were first introduced in 1997.

Okay, there are no prizes for guessing why the index went upwards. Energy inflation is taking its toll. The trouble is, at the beginning of this year, the German government pushed VAT upwards too, so that hasn’t helped either.

Germans don’t like inflation. And while there are reasons to think that some of the recent rises are one-offs, such a development will be received with dread by many in Frankfurt.

Bear in mind that the French premier, nearly-headless Nick Sarkozy, has been suggesting that the European Central Bank (ECB) has been too pre-occupied with inflation, and has been too willing to up interest rates, then you see a real division emerging in the Eurozone.

Before the formation of the euro, an independent central bank was considered almost sacrosanct in Germany. But recently, Mr Sarkozy talked about removing the independence of the ECB unless it becomes more open and accountable.

Or put it another way, unless the ECB objectively analyses the data, debates the issues of the day, and then, after a free and frank discussion amongst its members, independently agrees with Mr Sarkozy, then maybe it should lose its independence.