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When will Germany join the credit watch list?

German flag (Credit: AP Photo)

COMMENTARY Fitch Ratings just released its list of six European nations it is poised to downgrade. One country is conspicuously absent from the list: Germany. Although everyone talks about its strong economy -- its gross domestic product was up 3 percent for 2011 -- the country's GDP shrank in the fourth quarter. Continued slowing poses a number of problems, not the least of which is growth was all that distracted investors from looking at Germany's debt issues.

Right now the ratings agency says Italy, Spain, Belgium, Ireland, Slovenia and Cyprus will all have their credit grades reassessed by the end of January. Marks are definitely not expected to improve; all six are on the "ratings watch negative" watch list. David Riley, Fitch's head of sovereign ratings, says the grades could go down as much as two levels.

Here are the public debt levels (as percent of GDP) for those nations as of 2010:

  • Italy: 118.9
  • Spain: 60.1
  • Belgium: 96.6
  • Ireland: 94.9
  • Slovenia: 37.2
  • Cyprus: 60.8

And Germany? 83.9 percent.

Now, national debt isn't the only thing to consider when it comes to ratings. There is also how well the economy is doing. Actually, there's mostly how well the economy could do. This number is every bit as theoretical as it sounds, and it is the only possible explanation for the good ratings given to the U.S. (62.9 percent) and Japan (199.7 percent). 

Germany's GDP only shrank by .025 percent in the fourth quarter of last year, but it is expected to continue at least through the first quarter of 2012. This will put it into recession because the technical definition of a recession is two quarters of shrinking GDP. No matter how sound Germany's economy is, no one really thinks the contraction will stop after the first quarter. That's what being in Europe means these days. How much it will shrink is anyone's guess. If it shrinks a lot, though, its debt issues will become much more interesting to investors. If that happens, the best case for Germany will be it gets some of that blind faith that's been propping up Tokyo and Washington.

Germany's growth last year made it one of only five strongly performing eurozone countries. (The others are Finland, Austria, Slovakia and Luxembourg -- bet you can't find more than one on a map.) Given the EU's current condition, managing any growth is a miracle ... and miracles don't happen that often.

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