I woke up in the morning and opened the shades in my hotel room and perused the cityscape of Essen Germany, a mid sized city about 100km from the border with the Netherlands. The first thing that I noticed was that there were at least three construction cranes within a mile of the hotel where I was staying. I have been there many times before and I don’t recall seeing so much construction before, perhaps there was but I never noticed it.

I showered and walked the half mile to the office building where I was attending a week long conference. During a break later in the day, I got some air on patio on the roof of the four story building. The patio faced the opposite direction that of my hotel window. This view confronted me with four more construction cranes all within a few kilometers. I turned to one of my German colleagues and asked, “What is with all the construction going on? Haven’t you heard there is an economic crisis going on?” He replied simply and without a hint of sarcasm “Economic crisis? Not here in Germany.”

I was under the impression that Germany had been hit hard by the recession and it turns out I am not wrong, they have. It is just that the Germans do not seem to care, yet.

In the U.S. the entire country believed it was in recession a full year in advance of when we really entered one. In Germany it seems to be the opposite, they are in one, a bad one, but do not seem ready to acknowledge it.

Stratfor reports at RealClearWorld about the real state of the German economy:

Germany’s Bundesbank announced Monday that the recession in 2009 will likely “intensify further” than the 2.1 percent decline in gross domestic product (GDP) recorded in the fourth quarter of 2008.
…
The global economic crisis is cutting demand for goods across the board, from commodities to manufactured products. Exports are key to Germany’s economy, accounting for $1.3 trillion in 2008 — nearly 47 percent of GDP (compared to only 11 percent in the United States, 15 percent in Japan and 32 percent in China). However, German exports saw double-digit drops in both January and February, leading to a 21 percent decline in industrial output in February from the year-ago period.

The Organization for Economic Cooperation and Development has predicted that the German economy might shrink by as much as 5.3 percent in 2009, a much bleaker outlook than the 2.3 percent decline forecast by the European Commission in January. The 5.3 percent contraction would represent the biggest decline for Germany — excluding the immediate post-World War II devastation of 1945 and 1946 — since the depths of the Great Depression in 1932, when the economy shrank by roughly 7.5 percent. Considering that Germany’s GDP equals three times the combined output of its central European neighbors, the slump is certain to have immense effects on the rest of Europe.

What does all this mean? Are the Germans delusional? I don’t think so. Rather it is that effects of this downturn have been felt more acutely elsewhere and the German populace has so far been shielded from the recessions early ravages. Newsweek (yeah I know) sheds light on the perspective of the regular volk.

The main reason that most Germans have yet to feel affected by the crisis is, to put it simply, that they haven’t been affected. Unemployment, at 8.6 percent in March, only began to creep up in December when it was at 7.4 percent, and is still near lows last seen in the early 1980s. German banks were among the biggest speculators in toxic U.S. assets, but that has had few repercussions for ordinary Germans. They saw neither a bubble in real-estate prices (in fact, they’re a nation of renters) nor a boom in credit-fueled consumer spending, the implosion of which is now hurting the United States, Britain, Ireland and Spain. Though German stocks are down 41 percent from their 52-week highs (versus 39 percent for the Dow Jones), it affects few private households, as few Germans own stocks directly. For their retirement they depend on state pensions and life-insurance policies, whose returns (and risks) don’t show up on monthly statements.

Even if the average Johann has not yet felt the impact, with a GDP shrinking at 5.3% they certainly will, soon. Then what? I cannot help but wonder if and when the German populace finally removes its rose colored glasses, they will be ever more surprised and upset by what they see. Germany is the economic powerhouse of Europe, but it cannot carry the burden alone. With its own economy in trouble and surrounded on all sides by European economic and political basket cases, how will Germany react? A very difficult question. It could go different ways. Germany might see this crisis as an opportunity to expand its influence in Europe by supporting its neighbors in return for a number of political concessions. Or….as the Wall Street Journal reports others fear a different reaction.

The Germany economy is in free fall. Gross domestic product is expected to shrink 6% this year with no recovery in sight even in 2010, Germany’s leading research institutes said yesterday. More than one million people will likely lose their jobs this year….

In a recent series of interviews to the German media, trade union head Michael Sommer said the situation reminded him of the 1930s — when, according to his reading of history, widespread poverty paved the way for the Nazis’ rise to power. If there are mass layoffs, it would be a “provocation for workers and unions,” and “then I can no longer rule out social unrest even in Germany,” Mr. Sommer warned.

With a critical election coming in September, this question is not an academic one. While the WSJ thinks that the odds that we are seeing a modern Weimar Republic are overblown, the dangers cannot be ignored. Is the danger overblown? Perhaps so. But when fear and anger rule the day, history has a way of asserting itself. If it does, so much the worse for everyone.