Philip Coggan - Germany will be first to feel the benefit

Sometimes economic figures are so awful they are worth repeating. German GDP fell by 3.8 per cent in the first quarter. Had the figures been reported in the American fashion, with the quarterly change getting annualised, the headlines would have talked of a 13.9 per cent decline.

It must be particularly hard for the Germans to take. They did not have a housing bubble. They have kept their budget deficit under control. Having joined the eurozone at too high an exchange rate, they suffered years of sluggish growth while they got their costs back in line and turned themselves into an export machine. They were virtuous while the Anglo-Saxons were profligate, and yet their GDP is declining at a faster rate.

The problem for the Germans is there is no hiding from the correction of global imbalances. Yes, consumers in Britain and the US were profligate. But the Germans were part of the same system. They sold the capital goods to China, which the Chinese used to sell consumer goods to Britain and America. But in a sense they were rather like those Victorian merchants who sold goods to the aristocracy; the sales figures look great until you find out the nobility can’t afford to pay.

The weak GDP figures have been seized by some as further evidence that the eurozone as a whole is in terrible trouble. They cite the caution of the European Central Bank (relative to the Federal Reserve and Bank of England) on matters such as quantitative easing as a sign the region risks a prolonged period of recession. They think the eurozone may eventually be forced to break up because of the pressure on the finances of its weakest members, notably in the Mediterranean countries. Some even draw parallels with the 1930s, when France clung to the gold standard for far too long, making its depression far worse than that suffered by Britain, which abandoned the link in 1931.

It is certainly true Britain, by staying out of the euro, has been able to let sterling depreciate and thereby give some relief to its exporters. That is a solution not open to either Spain or Ireland, two countries like Britain that are suffering from housing collapses.

But it is a mistake to think that devaluation is always an easy option. It is tempting to remember the example of 1992, when dropping out of the Exchange Rate Mechanism, allowed the government to cut interest rates and lead Britain out of recession. But devaluation is a much more dubious option when, as now, a country is running a very large budget and trade deficit. Britain depends on foreign creditors to finance it, and they will not look kindly on a country that devalues its currency.

Gordon Brown’s best move was to give the Bank of England control of monetary policy. That gave foreign creditors confidence, as did the apparent success of the city of London. Now foreign creditors may be tempted to believe Jim Rogers' line that Britain, with dwindling oil reserves and a weakened financial sector, has nothing left to sell. Germany, by contrast, will start to benefit once the Asian economies start to boom again; China already seems to be leading the way.