Tuesday, September 13, 2011

Germany's Choice

Germany is the world's #2 exporter, very close behind China.  In 2010 it exported a total of 960 billion euro, amounting to 42% of its GDP.  Its trade surplus came to 153 billion euro, almost 7% of GDP.  Impressive stuff, no doubt, and an achievement that Germans are justly proud of.

But, not all surpluses are created equal... 35 billion of that surplus, a whopping 23%, was accounted by just four countries: Italy, Spain, Greece and Portugal.  Yes, to a very large extent the PIGSs' munching at the trough was what kept Germans working in their factories.  And if you just add France, another country that is currently screeching towards the borderline of fiscal probity - at least according to financial markets - the numbers get even more interesting.  Germany's PIGS+F trade surplus jumps to 64 billion, a full 42% of Germany's entire trade surplus. In GDP terms (trade surplus is GDP-additive), PIGS+F surplus accounts for nearly 3% of Germany's economy. 

Germany Slurping With The PIGS

However, short-sighted and haphazard German talk of harsh reprisals are turning the country's best customers into pariah states.  Recently, a German politician even proposed that eurozone members that can't get their fiscal house in order, raus!, should have their flags fly at half mast at all EU sites.  Germany is not making any friends acting in this ham-fisted fashion.

Ah, you may say, Germany doesn't need to coddle dead PIGS anymore and can just export wonderfully advanced stuff to super-charged China. Really?  Germany had a whopping 23 billion trade deficit with China in 2010.

German people have a very serious choice to make here, and Mrs. Merkel is furiously waffling instead of leading and speaking clearly.  From one side of her mouth she's insisting that she's fully committed to the euro, the eurozone, etc.  From the other side emanate dire threats of bankruptcy, default, exit from the eurozone - even the EU itself, all directed at those very PIGS whose consumers are keeping her countrymen happily and gainfully employed.

She's got to tell Germans the truth, at long last: Germany is such an export powerhouse and fiscal icon precisely because the others aren't.  It takes two to tango, Mrs. Merkel...


  1. Great points.

    Sadly, Germans don't tango. they backwardate :)

    I think they do that shoe and thigh slapping jig, shoeplatter? but it's less about moving in sultry step with your partner and more about making a display of virility.

    I reckon what with the trillions hunting 'quality' (lumps of yellow metal!?? jeez guys) , as a result of fear and monetary easing, any fiscal stimulus (whether orchestrated centrally, or implied by,say, a repatriation tax amnesty) will blow up badly. We're in zugswang, the next move is fatal.

    La Tango De La Morte!

  2. Agree, great points. I like to think the Germans had a great concept in mind when they attempted to integrate European economies under one banner, but the cynical side of me thinks a possible alternate reason was they just wanted to have a guarantee they would be paid in Deutschmarks.

  3. Interesting thoughts. I look at this a bit differently. Though the PIIGS are certainly important for Germany's exports, they are a financial basketcase. Much like a WW1 soldier with gangrene who must severe his leg to live, Germany can cut off support for there neighbors and live, though weakened. Or they can keep bailing them out and die with them.

  4. I always think of countries with trade surpluses as the righteous ones who have a right to rule the world, wheras debtor nations are entities who need to be punished by being tried and executed.

    Savers/Exporters = good and industrious

    Debtors/Importers = evil and slothful

  5. All true. The german fiscal surplus is the mirror of the GIPS crisis.

    Ironically, Germany has surprisingly weak fiscal numbers. In fact, it is right in the middle of the pack in terms of public indebtedness.

    The problem with the current crisis is that it is often seen as a problem of weak southern european economies. However, high levels of public debt is endemic throughout the advanced world.

    A recent IMF video makes this point very forcefully:

    Advanced country debt levels reach 100 percent of GDP

    It is not just Greece. It is everyone, including Germany.

  6. At last a non-aggressive, non contentious point made on EC made on a US financial blog.

    Good point! Alas the first and only I have read in a month or so. And I spend 3 hours a day on financial blogs...

    All others being aligned more or less on the UK-Telegraph political line agenda. Not the Guardian.

    That in itself is a great achievement in this world of to-day:)

    The US and the old Europe are getting into a path of definitive banking and monetary divorce.

    That's a pity but this rift is IMHO an fully intractable output of the current crisis:(

  7. "Best Customers?" Best customers pay their bills. We have a case of complex vendor financing here. Those "best" customers cannot and/or will not pay back.
    Why go on with this farce? There is no happy ending for german finances, neither now nor later.
    Merkel has to play a tactical game to deliver the German savings and tax base to save the political system for a few years. From a German standpoint this is High Treason. Why do you wonder she has to talk the way she does?
    PS: High Treason it WILL be, only question if timing is sufficient. I would look more for countries like Finland and Netherlands. Austria looks like coming into the line here and now .....

  8. Oh they are best customers, allright.

    One of the "best" wealth transfer mechanisms is trade imbalance, particularly within a currency union that does NOT include a fiscal union.

    In this way, a nation with a wide trade surplus can rake in the money from another without any currency risk and, most significantly, without having to provide any real-economy benefits such as education, health, defense, transportation, etc.

    Ask the German businessmen where THEY stand on the issue....

  9. Hellasious says:

    "One of the "best" wealth transfer mechanisms is trade imbalance, particularly within a currency union that does NOT include a fiscal union.

    In this way, a nation with a wide trade surplus can rake in the money from another without any currency risk and, most significantly, without having to provide any real-economy benefits such as education, health, defense, transportation, etc."

    Maybe this wealth transfer is the right thing to happen. It may be that the Germans are inherently better humans than the weaker, less moral, deficit countries.

    Those evil, depraved deficit countries may not deserve any of those real-economy benefits.

    Aren't we overlooking the point that justice and fairness might be being served here?

  10. Not sure I follow your point Hell. Let's say I run a bookstore and sell you and your brother few books. Does that mean I will have to babysit you and your brother for all your problems? Do you expect me to clean your toilet and pay your electric bills, while you will be vacationing in Greece just because you are one of my customers at the bookshop?? What kind of distorted logic did they teach you in school?

  11. If you are arguing that German banks were stupid to lend to Greeks to buy German products and should absorb the losses, I agree with you. Seems like that is the direction of current round of actions. If you are arguing that German citizens should pay for lazy Greeks retiring at age 45, I do not see why. (No, don't try to pull one of your distorted charts showing Greeks work very hard, because I traveled extensively in both countries and know their difference).

  12. @Greenie

    And I suppose travelling in a country extensively makes you knowledgeable about a country's history and past??

    Read a little more history before you post your BS at a random blog.

    For starters pick up some reference work from Eurostat, the IMF and OECD that outline the facts (regardless of who they are siding with) for the EU and Greek economy over the past 10 years. Then spend more time to study finance and history to understand why the economy of Greece is the way it is and leave the stories for layabout Greeks to the tabloids.