Germany finds itself in an enviable trade position
JOANNA SLATER
BERLIN — The Globe and Mail
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In the casino of world economies, Germany is the high roller enjoying an unusual streak of good fortune.
Joblessness is at a record low, the economy is expanding and exports are powering ahead like a well-oiled locomotive. Here’s the kicker: Does this sound like a country that needs near-zero interest rates, unconventional bond-buying to stimulate growth and a plunging currency?
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Nope. But that’s exactly the stroke of luck that Germany is enjoying at the moment, courtesy of euro zone policy aimed at helping the weaker economies in the currency bloc.
This coming week is due to provide more evidence of how those policies are giving Germany a boost. On Monday, the German government will announce trade data for January. The previous round of such figures, released in February, showed that Germany had racked up a record trade surplus in 2014.
Propelling the trend is a swooning euro, which makes German exports cheaper for global customers. The euro’s tumble, in turn, is a result of the drive by the European Central Bank to push interest rates as low as they can go – and then some. Last week, the currency slid to an 11-year nadir against the U.S. dollar.
Trade figures stir up a long-held grudge about the export-driven German economy, namely, that it thrives on buying by other countries but doesn’t do enough to contribute to global demand. Germany and China are often lumped together in this category as two countries that need to “rebalance” their economies toward consumption. In 2011, Germany overtook China as the country with the world’s largest current account surplus and shows no signs of relinquishing the crown.
Germany gets all kinds of flak for this behaviour. A comment late last year from Jacob Lew, the U.S. Treasury Secretary, was emblematic. It is “critical” that Germany, with its trade surplus and now-balanced budget, spend more to boost demand and lay the groundwork for future growth, he said. “The scale of the fiscal effort needs to reflect the urgency of addressing today’s demand shortfall,” urged Mr. Lew.
The response from Chancellor Angela Merkel’s government: a polite “nein.” Germany is the land that Keynesian economics never conquered. The notion of large-scale borrowing to stimulate demand is always a hard sell here, except in the direst circumstances (such as the 2008 financial crisis). And as some have noted, it’s hard to see how building bridges in Germany would help solve the structural challenges facing Greece’s economy.
In fairness to Germany, it is taking small steps toward consuming more. Real earnings rose by 1.6 per cent in 2014 – the most since the financial crisis – putting more money in the pockets of consumers. Imports also hit a new all-time high last year, pointing to growing demand. In January, retail sales jumped 2.9 per cent from the prior month, their biggest such increase in seven years.
Still, it’s likely a waste of time to hope that German consumers will break out of their ingrained habit of moderation and spend to excess. The last time they went on a major binge was in the euphoria surrounding the fall of the Berlin Wall in 1989 and the country’s reunification the following year, said Holger Schmieding, chief economist at Germany’s Barenberg bank. “That was a national party,” he said. “It’s the exception. It’s not what happens every economic cycle.”
So what else could Germany do to deal with the glares from its peers? One small but important step would be to acknowledge its good fortune in the first place. In Germany, most of the discussion of the economy is imbued with either pride in its strengths (world-class manufacturers, highly-skilled workers) or worry about its future challenges (an aging population, run-down infrastructure). Meanwhile, the discussion of the euro zone is focused solely on what Germany stands to lose if weaker members of the union don’t pay their debts.
The stark truth is that Germany has won big in the gamble that is the euro zone – and continues to do so. It might be time to have a little sympathy for the other players at the table.
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