German Stocks: The Higher They Climb, the Harder They Could Fall
The reasons for the run-up are also the seeds for a fall. Germany is the dominant economy in Europe. Its exports grew more quickly that those in the rest of Europe, the U.S. and the U.K. as the recession ended. Germany's laws, which encourage companies to keep workers during a downturn, probably helped consumer spending. The country's national budget has kept its debt at a low 77% of GDP last year -- compared to Japan at 192%, Italy's 115%, and Greece's 108%.
Germany is also the "bank" for Europe. If the economies in Portugal and Spain falter, Germany may be called on to put more money into any EU bailout facility. That, in turn, could raise its national debt.
The rise in German equities has been breathtaking. That means it won't take much pressure to bring them down.