Originally published on Mar 19th, 2012

Ger­many has played a major role in every dis­cus­sion revolving around the cur­rent Greek budget­ary crisis. Not only has the coun­try been singled out as the biggest cred­itor, and more gen­er­ally as Europe’s pay­mas­ter, but it has also come under severe cri­ti­cism for enfor­cing an export driven eco­nomic policy that con­demns its European part­ners to neg­at­ive trade bal­ances with Ber­lin. It has been argued repeatedly that Ger­many is there­fore at least partly respons­ible for the prob­lems faced by the coun­tries on the peri­phery of the European Union. Germany’s chan­cel­lor, Angela Merkel has forced crisis-hit coun­tries like Greece, but also Italy, Spain, Por­tugal and Ire­land, to impose severe budget­ary cuts and intro­duce reforms aimed at eco­nomic mod­ern­isa­tion and labour mar­ket lib­er­al­isa­tion. The res­ults have been mixed, with the Irish eco­nomy clearly recov­er­ing and also Spain, Italy and Por­tugal dis­ap­pear­ing from the head­lines (and off the radar of most com­ment­at­ors and ana­lysts, it seems). Greece on the other hand has remained in the spot­light and with the second bail­out pack­age agreed upon in Brus­sels recently, rumours have sur­faced that a third pack­age might be neces­sary (though, maybe wisely nobody has yet spoken of any res­cue actions after this) to keep Greece from defaulting.

Ger­many has through­out the his­tory of the European pro­ject been blamed of try­ing to shape it in its own image, mak­ing it a lar­ger copy of itself. In the eco­nomic and fin­an­cial con­text this would have meant recre­at­ing an overtly export ori­ented Union. There is no doubt that Germany’s eco­nomic suc­cess is largely due to its exports as domestic con­sump­tion has always lagged behind. It is exactly this issue that has triggered repeated state­ments that Germany’s suc­cesses come at the det­ri­ment of its European part­ners. A look at the stat­ist­ical data provided by Euro­stat actu­ally shows a rather inter­est­ing devel­op­ment in Germany’s trade bal­ance. The coun­try gen­er­ally enjoys huge sur­plus rela­tions with all major west­ern eco­nom­ies, with France and the United King­dom respons­ible for almost two-thirds of Germany’s intra-EU trade gains, whereas its east­ern trade bal­ance is more bal­anced, with Poland its biggest sur­plus part­ner and the Czech Repub­lic respons­ible for its biggest trade defi­cit in the East.

Eco­nomic growth “made in Germany”

After a few rather slug­gish years, Germany’s eco­nomic per­form­ance has been very impress­ive, with a near trip­ling of its export trade value between 2000 and 2007. At the same time it has gen­er­ated trade sur­pluses of 500 per cent out­side the EU. Are crit­ics right then, when they claim that Germany’s title as “export world cham­pion” is only pos­sible because its European part­ners run trade defi­cits? It would cer­tainly seems so, con­sid­er­ing that no other European eco­nomy has benefited more from the removal of trade bar­ri­ers, tar­iffs and the reduc­tion of exchange rate fluc­tu­ations through the intro­duc­tion of a com­mon cur­rency. All this has made the com­par­ison of prices easier for cus­tom­ers and, com­bined with the per­ceived super­ior qual­ity of goods “Made in Ger­many”, gives Ger­man com­pan­ies a con­sid­er­able com­pet­it­ive advant­age over their French or Brit­ish com­pet­it­ors. Ger­man auto-mobiles, machinery and phar­ma­ceut­ic­als are among the world’s best and most sought after, explain­ing its huge trade surpluses.

How­ever, one would assume that European com­pet­it­ors could rival Ger­many though lower prices for their goods. This though might have been a tru­ism that is no longer valid. Ger­man wage mod­er­a­tion in the early 2000s under the Schröder gov­ern­ments, accom­pan­ied with huge invest­ments in the mod­ern­isa­tion of its major indus­tries, has led to a con­sid­er­able boost in effi­ciency, res­ult­ing primar­ily in a) faster and increased pro­duc­tion and b) lower pro­duc­tion costs per unit. Both factors play a cru­cial role in ensur­ing that Ger­man products remain com­pet­it­ive and cheap enough to ensure large demand abroad.

Germany’s export ori­ent­a­tion, espe­cially within the EU, is not without dangers. In the time between 2007 and 2009, its intra-EU sur­plus melted from over €125 bn to around €70bn, whereas its extra-EU trade bal­ance remained almost unscathed by the begin­ning of the fin­an­cial crisis. Largely respons­ible for the slump were lower demand in Spain and Italy, where demand for Ger­man goods was almost half as much as two years earlier!

Intra-European trade and Ger­man demand

What about Ger­man intra-EU imports (or arrivals, as the EU jar­gon has it)? Imports reached an all-time high of almost 520bn Euro in 2008 before drop­ping sharply in the second half of 2008 and after­wards. The country’s intra-EU imports are by far exceed­ing the imports of any other EU coun­try. Span­ish and French imports com­bine are almost equal to Ger­man imports, thus claim­ing that the coun­try is not import­ing enough from its European neigh­bours seems to be a bit far fetched. Intra-European arrivals are almost twice as high as extra-European imports (mostly Chinese and Amer­ican goods)! It is dif­fi­cult to con­demn Germany’s decision to import goods from China or Viet­nam if those goods are com­par­able in qual­ity but cheaper than European products. In a glob­ally oper­at­ing free mar­ket, every mar­ket player, regard­less of the mem­ber­ship in a regional organ­isa­tion, will pur­sue a rational and eco­nom­ic­ally sound policy. Besides, most European majors pro­duce in China, not in Europe, and those products of genu­ine Chinese ori­gin are often not pro­duced in Europe as the old con­tin­ent has decided to rein­vent itself as a service-oriented eco­nomy and has thus closed down most of its man­u­fac­tur­ing centres.

To demand from Ger­many to import more from its European neigh­bours is thus some­what naïve and pop­u­list. The coun­try will con­tinue to be both Europe’s biggest importer and exporter, both in intra- and extra-EU trade, but in order to boost Ger­man demand for European goods two factors need to be met: Germany’s domestic con­sump­tion needs to pick up; an issue con­sec­ut­ive gov­ern­ments have struggled as Ger­man con­sumer demand remains at sat­is­fact­ory high but not very high levels with the excep­tion of the hol­i­days, espe­cially Christ­mas and New Year’s; and its European part­ners need to offer a port­fo­lio of products, which Ger­many cur­rently imports else­where. Though this might seem like a reas­on­able pro­posal, it actu­ally cre­ates new risks, espe­cially if the smal­ler eco­nom­ies ori­ent their eco­nomic out­put too much in line with cur­rent and pro­jec­ted Ger­man demand. Any proper diver­si­fic­a­tion of tar­get mar­kets will cre­ate the risk of over-dependence and poten­tial eco­nomic melt­downs, if demand in Ger­many would sud­denly collapse.

Euro­stat: External and intra-EU trade – stat­ist­ical year­book (1958-2009)


Fed­eral Stat­ist­ical Office of Ger­many


Agenda 2010:


Check the Fed­eral Stat­ist­ical Office of Germany’s “trade rela­tions com­pass”:


Euro­stat: External and intra-EU trade – stat­ist­ical year­book (1958-2009)


Germany’s low wages caused euro crisis, says report, Janu­ary 24, 2012http://mobile.globalpost.com/dispatch/news/regions/europe/germany/120124/germany-s-low-wages-caused-euro-crisis-says-report


Inter­na­tional Labour Office (ILO): Global Employ­ment Trends 2012