The conditions of German success

4 Jul

An earlier post identified economic trends within the Eurozone as zero-sum. Germany’s export-driven growth model was not universalizable, it argued, because Germany was mainly exporting to other European countries. Whilst Germany was benefitting from a weak Euro in its trade with the United States and China, it was profiting from the lower levels of competitiveness of its European neighbours. A look at Germany’s trade figures support this claim.

In general, countries of the European Union trade amongst themselves rather than with the rest of the world. In 2009, trade within Europe accounted for 72% of European trade overall. Germany was up until recently the number one exporter in the world. Today, it is number two, behind China and in front of the United States. These three countries together are well ahead in terms of total value of imports and exports. Some way behind them are other leading traders like Netherlands, Japan and France.

In terms of Germany’s own trade relationships, the figures are below. France is Germany’s number one export destination by some margin. Germany exported 91 billion Euros of goods to France in 2010, compared to 66 billion Euros to the US, and 63 billion Euros to the Netherlands. The top three countries importing into Germany are China, Netherlands and France respectively.

Thinking about the Eurozone’s problems at the moment, the main recommendation in practical terms has been that Southern European economies such as Greece, Spain and Portugal boost their competiveness by driving down wages and reforming their labour markets. However, this would only succeed if these countries were able in turn to find markets for their products. As things stand, either they would compete with German goods within and beyond Europe, or German consumers would start to spend more on goods from these Southern Mediterranean economies. Looking at the figures for private consumption by German households shows the extent to which private consumption has been kept down over the recent period of German economic success.

Private consumption expenditure of domestic households in Germany

Year % change on the previous year
2010 2.4
2009 -0.1
2008 2.3
2007 1.5
2006 2.7
2005 1.8
2004 1.6
2003 1.4
2002 0.3
2001 3.9
2000 3.2
1999 3.0
1998 1.8
1997 2.2
1996 2.6
1995 3.3

Source: German Federal Statistical Office, 2011

Comparatively, German consumers are therefore spending below their European counterparts even though Germany as a whole is outperforming its neighbours. Germany’s savings rate, for instance, is consistently above the average of the Euro area and of the EU as a whole. Eurostat figures for 2007 report that the German savings rate in 2007 was 16.7%. The Euro area average was 13.9% and the EU 27 average was 10.8%. Spain’s savings rate in 2007 was just over 10%; Portugal’s was just below 7%.

Higher demand in Germany is only likely if real wages in the country increase. Germany’s success, however, has been built by keeping those wages relatively low and there is little support politically within Germany for a more inflationary economic model. Much of the discussion around the Eurozone and its problems suggest that countries like Greece should model themselves on Germany. Yet the figures suggest otherwise. Over time, Eurozone countries are likely to compete increasingly for the same export markets as success in these markets becomes the condition for their own return to growth.

One Response to “The conditions of German success”

Trackbacks/Pingbacks

  1. A social investment pact for an anti-social Europe « thecurrentmoment - July 6, 2011

    […] wages and the distribution of the social product across society as a whole – untouched. With a Eurozone growth model based on wage restraint and recycled export revenues, what contribution can social investment make? […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: