Pity the poor Germans! They are in a bind. They are so rich that everyone looks to them to spearhead the rescue of the European Union and the euro from economic doom.

"The fate of Europe depends on Germany," says no less an authority than George Soros, the sage of high international finance.

But Germany has been dragging its feet, because much of its public is opposed to bailouts. Too many Germans, it seems, see the nations in trouble largely as lazy spendthrifts.

In turn, Chancellor Angela Merkel's government has reacted by limiting itself to a series of half measures that have allowed the crisis to go on festering.

That, however, has now created a potential problem for the Germans themselves. If they let the economies of Greece, Portugal, Ireland, Spain and Italy stew in their juices, they'll be cutting into one of the main sources of German prosperity: its hold on the EU as its largest export market.

A lesson for Canada?

It's a story that has a familiar ring to Canadians as it mirrors our dependence on the U.S. as our major customer.

Canada and Germany have very different economies. We are one of the world's biggest providers of natural resources, but we are also something of an industrial also-ran.

Germany, on the other hand, is poor in raw materials but a powerhouse in manufacturing.

What we have in common, though, is that both of us rely heavily on exports.

Exports accounted for roughly 45 per cent of Germany's economy last year. That makes the country even more dependent on foreign trade than Canada, with our 30 per cent.

What's more, German prosperity has for decades depended heavily on sales to the rest of Europe. Its EU partners accounted for 63 per cent of Germany's exports.

Add Russia and other European countries outside the EU, and that figure rises to close to 70 per cent. That's a lot of eggs in the same economic basket.

Selling Audis to China

The financial crisis of 2008 hit Germany hard. In 2009, its gross domestic product dropped by 6.2 per cent.

Canada's economy, propped up by a strong demand for our oil and other natural resources, fared much better. Our GDP decreased by only 2.6 per cent.

Yet by the following year, the German economy had roared back dramatically. GDP grew by 3.6 per cent; Canada's by 3.1 per cent.

The German boom was largely driven by export diversification to the developing world, particularly to China.

One intriguing statistic: sales of German luxury cars in China, mainly Audis, jumped by more than 40 per cent to 250,000 vehicles in the past year.

Now, though, that boom has hit a snag.

Germany's GDP only managed to eke out a skimpy 0.1 per cent increase in the second quarter of 2011, well below projections.

The main factor was stagnant domestic consumption, likely the result of lower consumer confidence. German consumers, it would seem, have sensed something the economic forecasters had not foreseen.

Europe's creditor

One quarter, of course, does not necessarily signal a trend. But it is a warning shot that could have serious consequences — not just for Germany but also for Europe and much of the rest of the world.

What is at stake here isn't just flagging sales; it's also the overhang of bad loans.


France's President Nicolas Sarkozy and German Chancellor Angela Merkel talk finance at the Élysée Palace in Paris in August 2011. ((Philippe Wojazer/Associated Press) )

In 2010, for example, Germany's government, banks and other creditors held roughly $680 billion in IOUs from Greece, Portugal, Ireland and Spain, according to the Bank for International Settlements. These countries also owe hundreds of billions more to other EU creditors.

As if that weren't enough, they also have to cope with an additional burden when they try to repay their debts. Because of their delinquency, they are being charged punitive interest rates on the bonds they issue.

To try to get around this, there have been proposals to create a "euro bond" stability fund that would pool money from all EU countries.

That would require the EU's wealthier countries, such as Germany, to share the risk with the debt-ridden ones, thereby allowing the fund to benefit from significantly lower interest rates.

Given that the Germans are already so heavily laden with uncollectible debts, it's no surprise they vetoed the idea.

But without German participation, as Soros has rightly pointed out, no solution is possible.

To do (something daring that could save the EU) or not to do (much of anything and risk things getting worse), that is the dilemma facing Germany. But then, daring has hardly been Angela Merkel's hallmark.