by Jerome a Paris
Mon May 19th, 2008 at 09:58:01 AM EST
Usually, I ignore editorial in papers - it's usually the microwaved edition of stale conventional wisdom. But lately, it's become quite fascinating, as the pundit class tries to process the financial crisis, energy prices or dollar weakness (in other words, grappling with Anglo Disease, Countdown Oil or Europe. Is. Doomed syndromes).
This week-end, the FT has it all, with a new name for the Anglo Disease (the nasty decade), concern trolling for the euro (The euro's success could also be its downfall - to be fair, this is an Op-Ed, not an editorial), and German envy (Germany through the looking glass). That last article deserves a detailed commentary follow me below the fold.
A proud member of the Europe.Is.Doomed series.
For leaders of a country that is so good at this globalisation business, Germany's political class is not exactly embracing the idea: raving about locusts, monsters, mutants, caravan capitalists and, most recently, monsters once again. Presumably the Jabberwock is next. Yet despite the depredations of this fearsome menagerie, Germany's prowess as an exporter is enviable - a looking-glass puzzle indeed.
- maybe the financial capitalists have very little to do with Germany's export success, which is built on outstanding engineering, highly qualified workforces, and long term relationships?
- or is it that Germany still has politicians willing to express leftwing ideas? I understand these have become unseemly to print in English-language newspapers, but they are - gasp - still openly expressed in some countries, where it is allowed (gasp again, presumably) to criticize globalisation and, worse, to not consider it inevitable or, even, desirable in the way it's been promoted lately.
Germany's economy is a conundrum in other ways. The obvious successes are likely to be fleeting, while the real triumphs have gone unappreciated. This is a mysterious and risky combination.
In case there was any ambiguity here:
- obvious successes: those made possible by the "Rhenan capaitalism" model;
- real triumphs: those made possible by "reform"
Consider the apparent successes first. Germany's export performance has been impressive. According to Eurostat, Germany's trade surplus of 33.9bn in January and February this year equalled the deficits of the UK and France put together; that is no small feat. Better yet was sensational first-quarter economic growth of 1.5 per cent. In these troubled times, that looks more like an annual growth figure than a quarterly one.
A quick look at EU statistics tells me that the UK has a 23bn trade deficit, while France had a 10bn trade deficit - it's fascinating to learn these days how the French economy is similar to the UK one - not just its trade deficit (ignoring any tourism surplus/deficit), but its budget deficit (ignoring its position relative to the 3% Maastricht limit) or its housing bubble (ignoring banks's recklessness) are now regularly compared to the UK's - I'm sure this has nohing to do with the fact that these look bad, and that misery loves company. Heck, even France's and UK's GDP are comparable these days...
Anyway, Germany looks good compared to France, thus one of the big eurozone economies looks bad and all is well.
Yet a good chunk of that growth is the result of a construction boom, made possible thanks to a mild winter. Another element may be catching up from underestimates for economic growth in the fourth quarter of last year.
It's cyclical, it's linked to "special factors", it's just a catch up. What's clear is that these good numbers do not reflect any underlying reality.
This is not to say that the boom is an illusion - simply that it cannot continue in the short term. The strong euro is already boosting imports and slowing export growth. As businesses continue to adjust prices to reflect the euro's strength, the trade surplus is likely to shrink. Growth in Germany's trading partners is slumping and the country is struggling to complement its export performance with stronger domestic spending. This quarter, the economy is fighting stronger headwinds.
Hmmm. Let's look at recent numbers, from the already quoted EU trade numbers
(in EUR bn)
Eurozone exports, Feb. 2007: 115.3
Eurozone exports, Feb. 2008: 129.3
Eurozone imports, Feb. 2007: 116.9
Eurozone imports, Feb. 2008: 128.6
And that's with the euro going from roughly 1.30 to the dollar in February last year to 1.47 in February this year.
The "headwinds" have been announced for over a year (and before that, Germany was going to suffer from the VAT increase in early 2007 - remember how that particular decision, which made it possible for Germany to have a budget surplus last year, was seen as a horrible thing back then?). And yet, here we are, a year later, with new euro records - and new export records. It has to be unsustainable.
For all that, the strange thing is that Germany is well positioned for the medium term. The current upswing has provided the stage for the labour market reforms of Gerhard Schröder, the former chancellor, to prove their effectiveness: employers have been far more willing to take on new workers, and quickly, than in the previous upturn of the late 1990s. That should be the real cause for celebration, but the good news has been masked by a general fear of global economic turbulence and particularly by high fuel prices, which have seriously dented consumer spending power.
Ah, I see - it's not reform that cut wages that are the cause for lower spending power - it's high fuel prices. How conveeeeenient. And businesses are the good guys, see: despite the "turbulence", they have been willing to hire people in record numbers. See how nice they are - it has nothing to do with crushed wages and record demand, promise, it's only "reform" in action as promised.
Chancellor Angela Merkel can hardly be expected to trumpet the achievements of a previous government, but she should build on them. Germany must renew its commitment to reform.
See how open minded we are: we're perfectly willing to praise a leftwing government (as long as it does neoliberal policies).
And how consistent we are: anything good that happens is thanks to "reform", and anything bad that happens (or threatens to happen, if only in our vivid imaginations), is aused by the lack thereof.