by afew
Wed Jul 25th, 2012 at 05:59:08 AM EST
EconoMonitor has a couple of posts up that present a view of German export power that differs from the one generally held here. Thomas Grennes & Andris Strazds ask if Germany is Übercompetitive:
EconoMonitor : EconoMonitor » Is Germany Übercompetitive and Should it Accept Higher Inflation?
...while Germany has been running a large current account surplus, such countries as Spain, Portugal and Greece and to a lesser extent Italy have been living with current account deficits for many years, the flip side of the coin being that the deficits have been financed by borrowing from abroad. Thus the southern European countries have been accumulating more and more foreign debt, both public and private or, in other words, their net international investment positions have deteriorated. However, this does not tell the whole story. Let us look at how the competitiveness of Germany and southern European countries evolved during last decade by examining the development of their market shares in global merchandise exports since 2000.
The first chart offered by Grennes and Strazds:
Germany's global market share has been trending downwards, less than but all the same like those of the GISP countries. In percentage terms, compared with other major exporters:
Germany has, roughly speaking, maintained its global share (from 8.6% in 2000, to 8.2% in 2011). In the context of increased world trade with rising competition from emerging economies, managing to approximately maintain its share could be seen as a consequence of a Euro-advantage: "that Germany is benefiting from an undervalued exchange rate" (Grennes/Strazds). So another comparison:
As evidence that Germany has derived no advantage from the euro, this appears inconclusive -- except possibly for the comparison with Eurozone Finland and to some extent euro-pegged Denmark. As for whether Germany derived an advantage from its terms of trade with southern Eurozone countries:
EconoMonitor : EconoMonitor » Is Germany Übercompetitive and Should it Accept Higher Inflation?
As can be seen in the chart below, Germany has been losing market share in southern Europe during last decade.
One would like to see this in trade volumes rather than share, and above all a breakdown of energy imports which may well have increased their share at the expense of other merchandise imports.
Finally, a table of Germany's principal partners:
(For Netherlands, read Rotterdam, ie, a great deal of these goods go through NL in transit. For Belgium, think of Antwerp.)
Grennes and Strazds conclude:
EconoMonitor : EconoMonitor » Is Germany Übercompetitive and Should it Accept Higher Inflation?
While the role of capital inflows in sustaining the current account deficits in southern Europe is obvious and Spain, Portugal, Greece and even Italy had relatively low ratios of exports to GDP at the advent of the euro, it is wrong to say both that the export sectors of southern European countries have experienced a huge loss of competitiveness during last decade and that this has happened as a result of their inability to devalue. In fact, the loss of global export market shares by southern European countries since 2000 has been comparable with that experienced by large developed trading nations while changes in market shares over a longer period of time are not correlated with the currency regime chosen by a country (Aghion and Durlauf).
The above also means that the cure suggested for the Eurozone in the form of higher inflation in the “core” countries might actually rather turn out to be poison. For example, what would be the result of German ULC going up significantly? That would inevitably result in loss of competitiveness and market share in global exports. However, the German market share in global exports is 8.2% while the combined market share of Italy and Spain is about 4.6%. Given the relatively lower weight of southern Europe in the global exports, the gains in competitiveness by Italy and Spain as a result of zero inflation there are unlikely to be big enough to offset the losses by Germany. Thus, not only Germany, but the Eurozone as a whole would be worse off as a result.
Rebecca Wilder, meanwhile, also looks at the broader picture.
EconoMonitor : The Wilder View » Euro Area Imbalances Are a Symptom of the Broader Global Imbalances
Some call the EA a microcosm of the world imbalances, i.e., Germany is to China as Spain is to the US. I disagree. I’d argue that the EA imbalances are a function of, rather than a mirror of, the broader global imbalances.
The chart below illustrates the change in the annual intra-EA trade balance as a share of GDP during the period 1999 to 2011. Spanning the years 1999-2011, intra-EA gains from the fixed exchange rate regime within the EA have been lopsided toward Spain, Portugal, and the Netherlands.
EconoMonitor : The Wilder View » Euro Area Imbalances Are a Symptom of the Broader Global Imbalances
Who are the winners of intra-EA trade spanning the entirety of the Euro Area? As demonstrated above, not many countries. The gains from trade came primarily from net exports from developed economies outside the EA
(...)
Of note, France performed poorly on both counts: intra- and total net trade, -3.2% and -4.9% of GDP, respectively. In contrast, Germany performed relatively well. Being the largest economies in the EA, and given that the absolute value of the total trade balances (either deficit or surplus) exceed that of their respective intra-EA balances, I hypothesize that the global imbalances exacerbated, even caused, the EA imbalances.
Comment, discuss, critique, etc, as usual.
