Angela Merkel, after a resounding victory in the elections, presented the new German government in December. The country is hitting record exports, but has incurred the criticism of the EU in Brussels, which blames Germany for the imbalance in the European economy.
The European Commission announced a review of Germany?s excessively high trade surplus (more than 6% of GDP), which, some experts believe, may become a negative factor for the economy of the united Europe. Indeed, after eight years under the leadership of Chancellor Angela Merkel, Germany has become the undisputed leader of the Eurozone, and it is no exaggeration to say that virtually the entire European system currently depends on it.
The Germans are being blamed for stopping the increase of production on the continent by demanding austerity measures. It is believed that Germany could help the EU member states that are in a difficult credit situation, that the necessary fiscal consolidation should be carried out more slowly and gently. That would probably be enough to calm the markets. But Merkel insisted on the real economy, forcing her neighbors to tighten their belts.
It is Germany that is supporting a strong euro, and some experts suggest that it is doing so to the detriment of other countries in the Eurozone. Observers who are disgruntled with Germany say that it benefited from the currency?s undervaluation against the deutschemark: If the country were using its old currency, that would be a serious blow to its exports. That is, the German economy received a powerful impetus from the transition to the euro. As a result, Germany is able to support a strong euro while maintaining competitiveness, unlike France, which would not mind a lower rate for the single currency. However, few can argue with the fact that a system in which economic growth relies on exchange rates, is ruinous in the medium term. The examples of Italy and Spain offer proof of that.
According to Francesco Saraceno, an economist from the Observatoire Francais des Conjonctures Economiques (French Economic Observatory), a country with high debt and low competitiveness may resort to lowering the real exchange rate (the value of its products in foreign currency) in order to increase exports and reduce its dependence on foreign capital. This can be done by having lower inflation than its trading partners or by reducing the nominal exchange rate. Countries on the periphery of the Eurozone could have gotten out of the current situation by lowering the exchange rate of the euro, which would have boosted their exports outside Europe, or by having lower inflation than the core Eurozone countries, which would have increased their competitiveness within the Eurozone.
But Germany threw up enormous obstacles to both of these strategies. Its foreign trade surplus was reflected in an overall trade balance in Europe which is close to equilibrium (recently it has even been in positive territory). The euro, in turn, has remained strong. The extremely low inflation rate in Germany also forced the peripheral countries to reduce prices and wages in order to restore competitiveness. This deflation contributed to increasing the debt burden and inhibiting economic growth, thereby making austerity completely useless.
Excess savings in Germany because of its enormous trade surplus deprives other Eurozone countries of an extremely important market. This forces them to look for ways to reduce their deficits by exporting outside the Eurozone, under conditions of a very strong euro. As a result, the financial position of other countries is improving more slowly than would be the case if Germany had agreed to increase imports and to a foreign trade deficit.
Saraceno also believes that Germany is offering other EU members only one model of development (its own), ignoring their cultural differences as well as political and social traditions. "In addition to cultural differences, Germany is not taking into account economic logic and the basics of accounting. A model of economic growth that relies on exports can only work if it is not widespread. The worldwide trade balance is zero by default, so we could all go with the German model only if we begin exporting to Mars. This is a very strange model, whose success is inextricably linked to the lack of successful imitators. Furthermore, the export model has another flaw of a geopolitical nature. A ‘German’ Europe, which relies on exports to the rest of the world to sustain its economic growth, has to deal with the U.S., China, and in the future, perhaps, and other major players, such as the states of the [Eurasian] Customs Union. And nobody knows how this conflict will end."
French economist Alain Fabre, on the other hand, believes that the solidarity of European countries is inextricably linked to their mutual responsibility. "In other words, according to the German government, reforms are required to reduce the deficit. Everything depends on this requirement, because it is difficult to imagine a Germany which would agree to pay for its neighbors while putting up with their deficits. And Germany is also just not able to help all of its partners. So there is no point in shifting the problems of the Eurozone from a sick economy to a healthy one."
Text: Maximilian Hamburg