Monday, July 2, 2012

One Picture Is Worth A Thousand Marks (or Merkels)

Given what is going on in the eurozone at the moment, it is worth it to point out that the biggest beneficiary of the euro is Germany itself - and by very, very far. 

The German Economic "Miracle":  It's All About The Euro...

And where do Germany's surpluses come from?

A full 41% of Germany's surplus comes from France, Italy, Spain and (gasp!) Greece, where Germany is still exporting like gangbusters despite the poor country being in its fifth year of recession.  In fact, Germany's trade surplus per person with Greece is 3.6 times bigger than that with the U.S. (290 euro per Greek versus 81 euro per American).

.... and something totally unrelated, but still in the subject of "one picture worth a thousand..."

Shanghai 1990
Shanghai 2010


  1. you fall prey to a common fallacy. Trade surpluses do not equal prosperity. They simply mean that the german are possibly more productive and they are exporting more goods in exchange for fewer goods. Also you need to account for capital goods (investment) not just consumption goods.

  2. To Julien; It is very difficult for the average German to understand that maybe the main reason for their trade surplus is not their skill, hard work and productivity but that their Government was running a mercantilist economy with an undervalued currency. No one would want to be told that, in the same way that no one in the UK wants to be told that their 'wealth' was nothing more than debt fuelled consumption. No one wants to hear these truths until they smack them in the face.

  3. Re: capital goods (investment)

    Basically, you are talking about capital transfers. But it is not always easy to distinguish between productive, long term investments (e.g. a factory or a port) and portfolio investment (e.g. purchase of government bonds).

    The former definitely benefits the receiving nation since it creates jobs, value-added, etc. The latter is just more debt-pumping...


  4. Mercantilist policy: Of course sth. true on it, the reason is the Euro. But on the other hand: Germany had an export surplus even when going with it's own currency (DM). It's exports to China have tripled within the last 3 years and now the trade balance with China is near to be even. Which other western country has achieved this in the face of the quite extreme chinese currency manipulation, this being really a strong mercantilist policy?
    Also, it's quite incredible that Greece will have a surplus ever. The reasion is simple: It has nothing to export to the world markets. So Greece is damned to be a consumer based on credit and was encouraged in this role by cheap Euro credits then and cheap ECB money now. Germany, stupidly enough, in fact donates its goods which it delivers to southern Europe, because it gets defaults back. I don't believe that this can work out for a very long time.

  5. German households and businesses deposited their financial surpluses at German banks and fund managers. Those institutions then used these savings to buy assets abroad. Most of them were invested across the eurozone. These included all manner of assets, ranging from the debt of Irish banks, to Spanish real estate firms, to Greek equities. That's correct: German banks helped inflate the bubbles that have now exploded across the eurozone with such disastrous consequences

    Here's where it gets interesting. German banks have been steadily extricating themselves from their exposure to southern Europe since 2007. German banks' gross credit claims against the nations of the eurozone periphery have fallen by 50 per cent, down to €300bn. They have been busily off-loading eurozone assets to reduce the risks to their balance sheets.

    And that has been taking place as the ECB has been extending its own balance sheet by providing cheap lending for banks across the continent to prevent them from running out of money. Here's how that works:German banks have stopped lending to eurozone periphery banks. And those banks have been forced to fund themselves, instead, by tapping the ECB for cash.

    But the risks return. Eurozone periphery nations are still running trade deficits with Germany. Those deficits that were previously financed by private German banks are now financed by the ECB. And thanks to the mechanics of the European monetary system that has resulted in the ballooning of the Bundesbank's claims against other eurozone central banks.

    Yet without more honesty from Germany this crisis will not end well. Huge transfers are still required from Germany to the periphery if the single currency is to survive. Those are likely to be politically impossible unless German politicians start to explain to their people that Germany is not only bailing out its neighbours, but bailing out itself.

  6. The bottom line is that the euro cannot survive as it currently operates. The eurozone needs a common fiscal policy - period.

    And this, by definition, includes transfers to the poorer members, just like NY and CA "support" Alabama and West Virginia.

  7. The idea that any crisis can be resolved by transfers is quite common now, but unfortunately dead wrong. The result will be a kind of socialism, where nobody has an incentive to be work, because all hypothetical gains are already put in pawn to undisciplined and unsuccesful communities. The end won't be anything than an economic perma defaulting. And as Margaret Thatcher straightforwardly told: "The trouble with Socialism is that eventually you run out of other people's money."

    Thus Finland said some days ago that it will exit Euro when it would be forced to pay foreign debt and mismanagment. Germany won't do so because of historical reasons and the outright EU fanaticism of its elite. But more and more of its population is tired to be the cash cow for luxurious french or italian consumerism and governmental maldecisions with regards to inflated social systems beyond any economical backing.

  8. They are "our" mercantilists and to be used as such against the myriad of mercantilists elsewhere

  9. 'And as Margaret Thatcher straightforwardly told: "The trouble with Socialism is that eventually you run out of other people's money."'

    Yes, she was wrong about that as well.

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