In a perverse kind of way I have some sympathy for our German friends these days. Not much mind you, but many ordinary German people and some of their politicians are quite taken aback at the recent turn of events.
Up to now, Germany’s economy was the envy of all of Europe. High employment, no significant wage increases, high levels of saving, still very competitive and increasing its exports. Germany was a text book success story.
However, there have been some concerns expressed in several quarters about the impact of Germany’s economic success in the European Union. Initially it was thought that the booming German economy would act as a driver to help lift the EU economy out of its current stagnation.
Indeed this might have happened had the Germans started spending. If they increased internal consumption then countries like Ireland and Spain might have increased their exports to Germany and that would have fuelled growth in their economies. That however has not happened - German growth has been largely driven by exports and Germans are saving, but very few are saving in Germany because of low interest rates there.
There has been a lot of rumbling in the EU for the past few months about the German surplus, but it wasn’t until recently when the Americans spoke out, that the finger pointing started.
Can you imagine their surprise? Their economy is a success and the rest of Europe is complaining! But just like the Irish who got a very nasty shock when they were burdened with bank debt in order to save the Euro – Germany now has to understand that being in the Euro is about giving as well as taking. Germany’s surplus is fuelling greater divergence between the core EU states and the peripherals like Portugal, Ireland, Greece, Spain, Italy etc.
German businesses pay much lower interest rates on money they borrow so their goods are cheaper. The German Government has benefitted to the tune of €150 billion because of low interest rates. So the crisis that has devastated some European countries has brought significant benefits to Germans.
However, if this continues, the divergence will increase and the currency will be under threat. At a recent meeting in the European Parliament I raised this issue with Commissioner Olli Rehn and Commissioner László Andor. Their response was straightforward. “Germany can do more, this is not a beauty contest of countries current accounts” was Commissioner Andors reply and Olli Rehn agreed. In simple language Germany needs to start spending and they need to start buying our goods.
Being in a currency union places demands on all its members and Germany is just beginning to see that if the Euro is to survive, they have to behave in a slightly less German way. Germany can no longer stand on the sidelines like some highly paid football manager shouting instructions at the rest of us. It needs to get off the fence, onto the pitch and start pulling its weight.