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October 8th, 2014

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Over 15 percent of Danish exports go to neighbours in Germany. But a sluggish German economy is now wreaking havoc with the export market, both in Denmark and across Europe.

Orders from German companies fell by nearly 6 percent in August – the steepest drop since the dark days of  the financial crisis in 2009.

"There is a relatively strong correlation between Danish exports and new orders from German companies,” Jacob Graven, the chief economist at Sydbank, told Jyllands-Posten. “The decline in Danish exports is tied to a drop in orders from German companies.”

Ukraine the culprit
The crisis in Ukraine has hit Germany hard.

They are major trading partners, and although the German economy is still basically sound, the longer the problems in Ukraine go on, the more problems they will cause for Germany and its European trading partners.

“Weak growth in the German economy in recent months is one of the main reasons that the European Central Bank (ECB) has cut interest rates to new record lows,” said Graven.

“This is the main reason why Danish interest rates are also at record lows.”

No change in policy
The weakness of the German economy, and the negative impact it has on the rest of Europe, has caused ECB president Mario Draghi to recommend that the German government relaxes fiscal policies by cutting taxes or increasing public investment. So far, those suggestions have been non-starters with the German government.

"Germany is proud it is one of the few EU countries with a balanced budget and it does not want to jeopardise that status with unfunded tax cuts or increased public spending,” said Graven. “It will take a long slowdown in the German economy before the government helps the rest of Europe by easing fiscal policy.”

READ MORE: Chocolate giant questioning future in Denmark

Graven said that Germany will most likely wait for an easing of tensions in Ukraine and a weakened euro to get its economy going again.

“Europe is hoping that strategy will work,” he said.