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The Deflation Threat in Germany: Economic Weakness Spreads to Europe's Largest Economy

Originally published by The Financial Times on August 14, 2012. Read the original article.

As Europe's largest economy, Germany has provided much of the financial support for the continent's other nations which have been the most crippled by sovereign debt. However, the eurozone's financial stalwart may be facing an economic challenge of its own: deflation. A reader of The Financial Times says economic weakness is now spreading to Germany and provides data to back up his assertion.

It is now evident that the weakness in the periphery has spread to Germany; third-quarter gross domestic product is estimated at just 0.45 per cent, compared with 2.7 per cent this time last year. Spain's Mariano Rajoy and Italy's Mario Monti will undoubtedly have tough decisions to make in coming weeks, but if Germany believes it will continue to be unaffected, it is mistaken. Inflation has been the hot button issue for Germany and the Bundesbank since the crisis began, but it's becoming clear that deflation is the bigger concern.

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