For much of the financial crisis that started in 2007, Germany remained strong and held the envy of modern economies around the world.

In 2010, the industrious country known for its fiscal discipline had GDP growth of 4.2%, followed by respectable 3% GDP growth in 2011.

Unfortunately, for Germans and the world, there are increasing signs the German economy is being marred by the global crisis. In 2012, GDP growth was a meager 0.7%. More significantly, GDP actually contracted by 0.5% in the fourth quarter.

Finance ministry officials expect the country to grow by 0.4% in 2013, a figure that may prove optimistic.

Here’s the rub with all of this: Germany is holding national elections in September. A slow-down in its economy, or worse, a recession could spell big problems for Chancellor Angela Merkel.

Chancellor Merkel’s coalition is weakening, while her opposition, all four of the other major parties, is united in one front: Germany first, bailouts of Spain, Greece and weaker euro brethren second.

Just last Sunday Merkel’s coalition was dealt a severe blow when the northern state of Lower Saxony took a one seat majority in the state parliament. If the trend continues into the national elections in September, when Merkel seeks a third term in office, it means the promised checks from Germany to insure the existing debt crisis doesn’t worsen may not come. Make no mistake about it, the risk lies in the German character—austerity and fiscal discipline.

In my view, these developments have significant implications on the investment landscape. Given the overall fragile state of the recovering global economy, a drastic change in policy within Europe could prove disastrous.

There are few economists or strategists who would disagree that should Germany cease funding and supporting the southern European nations, that Italy, Portugal, Spain and Greece would very likely have to exit the euro currency and that the trading bloc would splinter. It may not completely splinter, but it would almost certainly split into a North versus South, and we know how that tends to pan out.

So, what should investors do?

If you own or are exposed to European bonds, get out. The reality is that at this point in time, global economic indicators continue to improve—at least on a whole. Moreover, given the added stimulus and intervention by the Bank of Japan, ongoing liquidity and support measures by the U.S. Federal Reserve and improved balance sheets by banks globally, equities elsewhere look very attractive.

However, investors should become familiar with this new landscape and pay close attention to further negative economic signals in Germany. In the fourth quarter of 2012 industrial production fell by more than 2%, making it to the top of my list of economic indicators to watch.

Manufacturing is also very important, followed by export data. The later has some better momentum as of late. Roughly ¼ of Germany’s exports go to China. Now that it is apparent that China has avoided a hard landing, and its economy has steadied, exports to the worlds’ second largest economy could pick up again.

As a side note, for those of you who do not know. I am German by birth, I moved to the United States in 1984 with my family. They have since moved back and live in Germany again. This gives me the perspective of how “the average” German views things, as well as having the economic and market data to draw hypothesis such as the one detailed above.