Germany finds itself in an enviable trade position

JOANNA SLATER

BERLIN — The Globe and Mail

Published Sunday, Mar. 08 2015, 4:59 PM EDT

Last updated Monday, Mar. 09 2015, 5:18 AM EDT

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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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TOPICS:

• European Central Bank
• United States of America
• Germany
• China

Greek PM accuses Spain, Portugal of anti-Athens ‘axis’

COSTAS PITAS AND DAVID STAMP

ATHENS — Reuters

Published Saturday, Feb. 28 2015, 2:27 PM EST

Last updated Saturday, Feb. 28 2015, 2:30 PM EST

                                                         

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Greece’s leftist Prime Minister Alexis Tsipras accused Spain and Portugal on Saturday of leading a conservative conspiracy to topple his anti-austerity government, saying they feared their own radical forces before elections this year.

Tsipras also rejected criticism that Athens had staged a climbdown to secure an extension of its financial lifeline from the euro zone, saying anger among German conservatives showed that his government had won concessions.

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Greeks have directed much of their fury about years of austerity dictated by international creditors at Germany, the biggest contributor to their country’s 240-billion-euro bailout.

But in a speech to his Syriza party, Tsipras turned on Madrid and Lisbon, accusing them of taking a hard line in negotiations which led to the euro zone extending the bailout program last week for four months.

“We found opposing us an axis of powers ... led by the governments of Spain and Portugal which for obvious political reasons attempted to lead the entire negotiations to the brink,” said Tsipras, who won an election on Jan. 25.

“Their plan was and is to wear down, topple or bring our government to unconditional surrender before our work begins to bear fruit and before the Greek example affects other countries,” he said, adding: “And mainly before the elections in Spain.”

Spain’s new anti-establishment Podemos movement has topped some opinion polls, making it a serious threat to the conservative People’s Party of Prime Minister Mariano Rajoy in an election which must be held by the end of this year.

Rajoy went to Athens less than a fortnight before the Greek election to warn voters against believing the “impossible” promises of Syriza. His appeal fell on deaf ears and voters swept the previous conservative premier from power.

Portugal will also have elections after the summer but no anti-austerity force as potent as Syriza or Podemos has so far emerged there.

In an interview published before Tsipras made his speech, Prime Minister Pedro Passos Coelho denied that Portugal had taken a hard line in negotiations on the Greek deal at the Eurogroup of euro zone finance ministers.

“There may have been a political intention to create this idea, but it is not true,” he told the Expresso weekly newspaper.

Passos Coelho aligned himself with euro zone governments which have called for policies to promote economic growth but without trying to walk away from austerity as in Greece.

“We were on the same side as the French government, with the Italian and Irish governments. I think it’s bad to stigmatize southern European countries,” he said.

A VICTORY FOR GREECE

Portugal had to take its own bailout in 2011 but left the program last year. Finance Minister Maria Luis Albuquerque said on Saturday Lisbon would start repaying its loans to the IMF next month, giving back 6 billion euros.

This contrasts to Greece which remains in its EU/IMF program, almost five years and two bailouts after it had to seek international help.

Tsipras has portrayed the Eurogroup deal as a victory for Greece, even though it meant extending the bailout program he had promised voters to scrap. He noted German lawmakers from Chancellor Angela Merkel’s conservatives had attacked the Greek leadership when they approved the extension on Friday.

“We have all watched the strong opposition within Angela Merkel’s party which shows that unacceptable concessions have been made to Greece,” he said.

So far he has public backing. A poll conducted by the University of Macedonia for SKAI TV showed 56 percent of Greeks believed the extension had been a success, compared with 24 percent who said it represented a failure.

Ireland’s finance minister has said Athens must negotiate a third bailout when the extension expires in June - something Tsipras denied on Friday.

Finance Minister Yanis Varoufakis called into question a major debt repayment Greece must make to the European Central Bank this summer, after acknowledging Athens faces problems in meeting its obligations to international creditors.