Germany itself is at risk of a slowdown, which would make it even harder to end Europe's crisis. Many analysts say a downturn would hit home to Germans how much they depend on the health of other European economies. If so, they could become more willing to put money at risk to support their weaker neighbors.

Those issues are helping drive discussions that began Thursday at a European Union summit in Brussels. The summit is intended to reach agreements on how to shore up Europe's economies and save the euro alliance. Olli Rehn, the European commissioner for economic affairs, said Thursday he expects an agreement on steps to spur growth and reduce Spain's and Italy's unsustainably high borrowing costs.

Concerns about Germany's economy grew last week with a report that German business optimism fell in June. Earlier in the week, a survey showed manufacturing was slowing. Germany's economy is powered by exports, and manufacturing is at the heart.

Both surveys are intended to forecast where Germany's economy could be in several months. For now, its economy remains far stronger than its European neighbors'.

German retail sales unexpectedly fell for a second month in May as the sovereign debt crisis worsened, damping the economic outlook.

Sales, adjusted for inflation and seasonal swings, dropped 0.3 percent from April, when they declined 0.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.2 percent, the median of 13 estimates in a Bloomberg News survey shows. Sales dropped 1.1 percent from a year ago.

Unemployment at a two-decade low, falling energy costs and rising wages have bolstered consumer spending this year, helping to shield the German economy from Europe's turmoil. With at least seven euro nations in recession and budget cuts across the region eroding demand for German exports, investors and executives are growing more pessimistic.

Unemployment is just 5.4 percent. German autos and other products have been selling well in China and North America. Low interest rates have made it easy to borrow and invest. And the euro's value, held down by weaker nations in the currency alliance, has made German goods affordable for foreign buyers.

But Europe's raging debt crisis threatens the entire continent. Nearly 60 percent of Germany's exports go to the 27 countries in the European Union. Recessions in Greece, Spain, Italy and Portugal are weakening demand for those goods.

Slowing growth by its trading partners in Asia is also affecting Germany's economy. Asia accounted for 16 percent of German exports. Germany's exports to China surged 15 percent last year and contributed significantly to Germany's 3 percent growth in 2011.

Fear of a catastrophe, possibly resulting from a Greek exit from the eurozone or the need to bail out a big economy like Italy's, could make German businesses scale back plans to expand.

Economists still foresee modest growth in Germany this year, whose gross domestic product totaled €2.57 trillion ($3.42 trillion) in 2011 and accounted for 27 percent of the eurozone's economy. The interest rate on Germany's 10-year bond is just 1.56 percent - even lower than the rate on the U.S. 10-year Treasury note.

Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.Read the Terms of Service