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Like many, this article fails to point out that the German model would fail if it were applied equally everywhere. From a macroeconomic perspective, Germany is

Like many, this article fails to point out that the German model would fail if it were applied equally everywhere. From a macroeconomic perspective, Germany is "successful" because it kept real wages low relative to other Eurozone countries. In the old times this would have lead to a strong appreciation of the Mark. This balancing out via exchange rates is no longer possible within the Euro, which is why German exports are priced very competitively in the international market. This leads to high German net exports, while the Eurozone as a whole has a more or less balanced international trade. It is immediately obvious, though, that not every country can be a net exporter. Somebody has to be a net importer, and so Germany cannot be taken as a role model for the world as a whole. The other dark side of the German approach is that it makes the internal imbalances in the Eurozone, and hence the crisis, worse, and the majority of the German population doesn't really profit from it as real wages have been stagnant and even decreasing for the last decade or so.

justincormack 15y ago
Keeping real wages low is not the whole story. In fact the are not lower than most of Europe, although they are probably lower than the counterfactual of no euro. But it is productivity, and being in the right markets, and having the right infrastructure of companies in the same types of business that has worked, along with education and many other factors. Sure not every country can always be a net exporter, but many simply do not have competitive businesses in traded goods and services, and will end up either in debt, or with huge falls in real wages and living standards.
- paganel 15y ago
  > But it is productivity, and being in the right markets, and having the right infrastructure of companies in the same types of business that has worked, along with education and many other factors. It's also about Germany's proximity to former Communist countries in Central and Eastern Europe (both geographically and culturally). It helped put the pressure on German workers which otherwise are heavily unionized ("you have to agree to lower wages, otherwise we'll move everything to Poland or Romania") and it also provides German-based factories with cheap assembly parts which for the most part are produced in said countries. Just as an anecdote, my older brother was just hired as a truck-driver, and he just came back from a 4-day trip from Germany (we live in Romania) where he delivered some assembled parts for German car factories. He was paid some 300 Euros for the whole trip, and while I'm too lazy to search for how much a German truck driver would have earned for the same job, I'm pretty sure it would be at least 5 times more.
  - deleted 15y ago
    [deleted]
  - macco 15y ago
    I don't think German truck drivers make 1200 a Week. Let's say 600. This seems more realistic.
  - thomasz 15y ago
    Wages for Truck Drivers in Germany by city: http://www.gehalt-tipps.de/Gehaltsvergleich/Gehalt/Lkw-Fahrer/7812.html http://www.gehalt-tipps.de/Gehaltsvergleich/Gehalt/Lkw-Fahre...
    - Tichy 15y ago
      It's a bit difficult to compare because there will presumably be things like health insurance and pension plans on top of that, but it sounds more like ~120€/day (assuming 20 work days in a month). So not that much more than the 300€ (though the real cost for the German truck driver is probably much higher with insurances and whatnot).
      - franklindholm 15y ago
        For many European countries health insurance and pension plans are payed for by taxes, as for Germany specifically I don't know, but I know they have very cheap health care.
        Tichy 15y ago
        I wish - I pay between 400 and 700€/month for healthcare (public insurance). It's my biggest expense after rent. They fool employees by making the employer pay half of it, though - which of course doesn't make a real difference, but people are less likely to notice. I think the actual rate is something like 14% of your income, capped at 700 or 800€ (not sure). As I am self-employed, unfortunately by law they are required to assume a minimum income that might be higher than what I actually earn (completely absurd and unfair regulation to discourage self-employment).
- nhaehnle 15y ago
  Real wages in absolute terms may be higher in Germany than in other parts, but arguably, the more important measure to look at is the relative change since the introduction of the Euro. After all, at the point of changeover, the exchange rates were more or less compatible with the relative competitiveness of the national economies. When you look at that relative change, a pretty stark picture emerges. See e.g. http://www.nachdenkseiten.de/upload/pdf/110207_HF+FS_Euroland_in_der_Krise.pdf http://www.nachdenkseiten.de/upload/pdf/110207_HF+FS_Eurolan... The slides are in German, unfortunately, but the graphs should be fairly clear. The first few concentrate on inflation measures. On slide 5, you see the relative development of nominal labor costs. Note in particular the deviation from the inflation target of the ECB. It is clear that Germany must accept its fair share of the blame. The irony is that from a social and moral perspective, one could argue that adjusting wages throughout the Eurozone is a good thing. Unfortunately, that has created the current imbalances on the way, and is therefore at least partially to blame for the very high unemployment in the southern Euro nations.
mrich 15y ago
Yes, the German export industry has been heavily subsidized by the monetary structure of the eurozone. This is paid for by the guarantees of the various bailout funds (hastily-constructed EFSF, to be replaced by permanent ESM), which are mostly backed by German and French taxpayer money. I wonder whether politicians understood the implications of monetary union one decaded ago - their dealings with it really look genuinely clueless. I am pretty sure the export industry did.
- more_original 15y ago
  They ought to have known. German reunification and the associated monetary union had a much similar effect. One can make a rough analogy: West Germany then ~ Germany now; East Germany then ~ Greece now.
  - eru 15y ago
    I hope the Greece don't get all those Neo-Nazis that plague(d) former East Germany.
- nickik 15y ago
  The should have known if the don't, many economist where pointing it out back then.
  - ThomPete 15y ago
    They knew very well. They just betted that it would kind of solve itself. This is a pretty well established fact as far as I know.
    - nickik 15y ago
      I like the theory that germany was forced to exapt if they wanted to have a reunion.
- toyg 15y ago
  I think they understood it better than they've given credit for. People don't remember the political climate at the time: 20 years ago, when the Euro was planned and sanctioned, Germany was still divided, and West Germany was the top dog in economic terms among European countries (even more so than today) while most other countries (including France and UK) were fighting a recession. German public opinion didn't want to partake from the almighty Deutsche Mark, which was a rock in troubled seas (the British Pound was crashing, the French Franc was weak, the Italian Lira was losing 20% every 10 years, etc etc); French and Italian elites thought that a common currency would have allowed them to harness the German industrial strength, basically helping themselves to low interest rates they wouldn't have enjoyed otherwise. The German establishment mostly saw the Euro as a straight-jacket, a burden to accept in order to bring about their own reunification, which otherwise would have been opposed across Europe (a reunited Germany would have been dangerously powerful on its own). As it happens, it turned out better for them than for other members; this is why they keep insisting on a monetary approach to public policy that will keep others down, at least until this suites them.
nickik 15y ago
The problem with your agrument is that germany was a well functioning economy befor the euro and then they had a really strong currency.
Tichy 15y ago
"This balancing out via exchange rates is no longer possible within the Euro" Trying to understand - you mean it is not possible for other Euro countries (who also use Euro as their currency)? But does it really matter for them? They still have to come up with Euros somehow. If their only way to make Euros is to sell Olives, they might still have difficulties to afford a high end German car... As for the net importer stuff - I think some countries are just borrowing heavily, and I think Germany has been blamed for lending the money to those borrowers that in turn fuels it's exports. However, I fail to see what is so evil about it: either those borrowers become insolvent, in which case Germany gave away it's exports for free, or they can pay eventually. Also, why blame the money lender and not the borrower?
- davidw 15y ago
  > Trying to understand - you mean it is not possible for other Euro countries (who also use Euro as their currency)? But does it really matter for them? By way of example, Italy used to devalue the currency from time to time to give a bit of a boost to exports. This, for better or worse, is no longer possible.
  - Tichy 15y ago
    Still, I am not sure if in the end, such measures are only "snake oil". Theoretically it should all cancel out eventually. For example if you devalue the currency, your people become poorer. What is the difference to just paying them lower wages and thus selling your stuff for less Euros? Seems to me it is mostly psychological: devaluing the currency can be done sneakily behind the populations back (printing more money or whatever), whereas lowering wages would get noticed. Personally I am always for more transparency, so maybe it is a good thing if the sneaky way to conduct economics goes away.
    - ckuehne 15y ago
      Tichy is right. Devaluation - if at all - works only in the short run [1]. http://johnhcochrane.blogspot.com/2012/01/should-greece-devalue.html http://johnhcochrane.blogspot.com/2012/01/should-greece-deva...
thedaveoflife 15y ago
The lesson from the article isn't that every country should be a net exporter like Germany... it's that Germany has found success by focusing on producing goods and insuring a minimum standard of living for the middle class. While their exact situation may not be repeatable everywhere, there is certainly a lesson in their culture for other nations. You are correct that the Germans have taken advantage of macro-economic imbalances created by the eurozone, but why was it Germany and not France or Greece that has prospered? What is unique about Germany? I would argue it is their culture of hard work, efficient businesses and financial restraint. They do things the right way... why fault them for it?
- jennyjitters 15y ago
  I agree that there are a multitude of factors that have led Germany to the success they currently see. They have obviously found something that works very well for them (so don't hate!). I don't ever see the US mirroring their work-ethic, but we can certainly look to them to find improvements we can make in our own country. Less consumerism is key but has become so ingrained in US culture that I'm not sure it's a feasible goal. Regardless, I commend Germany for its success.
  - lispm 15y ago
    We (the Germans) were told that the US people work harder. They have either well paid jobs without vacation or they have several low-paid jobs. Plus they had to be more flexible, have less protection, drive long to get to their homes in the suburbs,...
lispm 15y ago
Gernan wages are higher than most in the Eurozone. It's just that they were not growing. Plus we added a lot of jobs which are relatively low paid. But many of those jobs don't exist in, say, Spain. In spain you are then unemployed. Which is especially common among young people.
jfoutz 15y ago
It's not obvious at all. exactly two trading partners with seasonal improvements in exports and constantly growing economies could have this sort of export data: http://www.wolframalpha.com/input/?i=x%2B+sin+x%2C+x%2Bcos+x http://www.wolframalpha.com/input/?i=x%2B+sin+x%2C+x%2Bcos+x just cherry pick your reporting dates, everyone is a net exporter.

justincormack 15y ago

Keeping real wages low is not the whole story. In fact the are not lower than most of Europe, although they are probably lower than the counterfactual of no euro. But it is productivity, and being in the right markets, and having the right infrastructure of companies in the same types of business that has worked, along with education and many other factors. Sure not every country can always be a net exporter, but many simply do not have competitive businesses in traded goods and services, and will end up either in debt, or with huge falls in real wages and living standards.

paganel 15y ago
> But it is productivity, and being in the right markets, and having the right infrastructure of companies in the same types of business that has worked, along with education and many other factors. It's also about Germany's proximity to former Communist countries in Central and Eastern Europe (both geographically and culturally). It helped put the pressure on German workers which otherwise are heavily unionized ("you have to agree to lower wages, otherwise we'll move everything to Poland or Romania") and it also provides German-based factories with cheap assembly parts which for the most part are produced in said countries. Just as an anecdote, my older brother was just hired as a truck-driver, and he just came back from a 4-day trip from Germany (we live in Romania) where he delivered some assembled parts for German car factories. He was paid some 300 Euros for the whole trip, and while I'm too lazy to search for how much a German truck driver would have earned for the same job, I'm pretty sure it would be at least 5 times more.
- deleted 15y ago
  [deleted]
- macco 15y ago
  I don't think German truck drivers make 1200 a Week. Let's say 600. This seems more realistic.
- thomasz 15y ago
  Wages for Truck Drivers in Germany by city: http://www.gehalt-tipps.de/Gehaltsvergleich/Gehalt/Lkw-Fahrer/7812.html http://www.gehalt-tipps.de/Gehaltsvergleich/Gehalt/Lkw-Fahre...
  - Tichy 15y ago
    It's a bit difficult to compare because there will presumably be things like health insurance and pension plans on top of that, but it sounds more like ~120€/day (assuming 20 work days in a month). So not that much more than the 300€ (though the real cost for the German truck driver is probably much higher with insurances and whatnot).
    - franklindholm 15y ago
      For many European countries health insurance and pension plans are payed for by taxes, as for Germany specifically I don't know, but I know they have very cheap health care.
      - Tichy 15y ago
        I wish - I pay between 400 and 700€/month for healthcare (public insurance). It's my biggest expense after rent. They fool employees by making the employer pay half of it, though - which of course doesn't make a real difference, but people are less likely to notice. I think the actual rate is something like 14% of your income, capped at 700 or 800€ (not sure). As I am self-employed, unfortunately by law they are required to assume a minimum income that might be higher than what I actually earn (completely absurd and unfair regulation to discourage self-employment).
nhaehnle 15y ago
Real wages in absolute terms may be higher in Germany than in other parts, but arguably, the more important measure to look at is the relative change since the introduction of the Euro. After all, at the point of changeover, the exchange rates were more or less compatible with the relative competitiveness of the national economies. When you look at that relative change, a pretty stark picture emerges. See e.g. http://www.nachdenkseiten.de/upload/pdf/110207_HF+FS_Euroland_in_der_Krise.pdf http://www.nachdenkseiten.de/upload/pdf/110207_HF+FS_Eurolan... The slides are in German, unfortunately, but the graphs should be fairly clear. The first few concentrate on inflation measures. On slide 5, you see the relative development of nominal labor costs. Note in particular the deviation from the inflation target of the ECB. It is clear that Germany must accept its fair share of the blame. The irony is that from a social and moral perspective, one could argue that adjusting wages throughout the Eurozone is a good thing. Unfortunately, that has created the current imbalances on the way, and is therefore at least partially to blame for the very high unemployment in the southern Euro nations.

mrich 15y ago

Yes, the German export industry has been heavily subsidized by the monetary structure of the eurozone. This is paid for by the guarantees of the various bailout funds (hastily-constructed EFSF, to be replaced by permanent ESM), which are mostly backed by German and French taxpayer money. I wonder whether politicians understood the implications of monetary union one decaded ago - their dealings with it really look genuinely clueless. I am pretty sure the export industry did.

more_original 15y ago
They ought to have known. German reunification and the associated monetary union had a much similar effect. One can make a rough analogy: West Germany then ~ Germany now; East Germany then ~ Greece now.
- eru 15y ago
  I hope the Greece don't get all those Neo-Nazis that plague(d) former East Germany.
nickik 15y ago
The should have known if the don't, many economist where pointing it out back then.
- ThomPete 15y ago
  They knew very well. They just betted that it would kind of solve itself. This is a pretty well established fact as far as I know.
  - nickik 15y ago
    I like the theory that germany was forced to exapt if they wanted to have a reunion.
toyg 15y ago
I think they understood it better than they've given credit for. People don't remember the political climate at the time: 20 years ago, when the Euro was planned and sanctioned, Germany was still divided, and West Germany was the top dog in economic terms among European countries (even more so than today) while most other countries (including France and UK) were fighting a recession. German public opinion didn't want to partake from the almighty Deutsche Mark, which was a rock in troubled seas (the British Pound was crashing, the French Franc was weak, the Italian Lira was losing 20% every 10 years, etc etc); French and Italian elites thought that a common currency would have allowed them to harness the German industrial strength, basically helping themselves to low interest rates they wouldn't have enjoyed otherwise. The German establishment mostly saw the Euro as a straight-jacket, a burden to accept in order to bring about their own reunification, which otherwise would have been opposed across Europe (a reunited Germany would have been dangerously powerful on its own). As it happens, it turned out better for them than for other members; this is why they keep insisting on a monetary approach to public policy that will keep others down, at least until this suites them.

nickik 15y ago

The problem with your agrument is that germany was a well functioning economy befor the euro and then they had a really strong currency.

Tichy 15y ago

"This balancing out via exchange rates is no longer possible within the Euro" Trying to understand - you mean it is not possible for other Euro countries (who also use Euro as their currency)? But does it really matter for them? They still have to come up with Euros somehow. If their only way to make Euros is to sell Olives, they might still have difficulties to afford a high end German car... As for the net importer stuff - I think some countries are just borrowing heavily, and I think Germany has been blamed for lending the money to those borrowers that in turn fuels it's exports. However, I fail to see what is so evil about it: either those borrowers become insolvent, in which case Germany gave away it's exports for free, or they can pay eventually. Also, why blame the money lender and not the borrower?

davidw 15y ago
> Trying to understand - you mean it is not possible for other Euro countries (who also use Euro as their currency)? But does it really matter for them? By way of example, Italy used to devalue the currency from time to time to give a bit of a boost to exports. This, for better or worse, is no longer possible.
- Tichy 15y ago
  Still, I am not sure if in the end, such measures are only "snake oil". Theoretically it should all cancel out eventually. For example if you devalue the currency, your people become poorer. What is the difference to just paying them lower wages and thus selling your stuff for less Euros? Seems to me it is mostly psychological: devaluing the currency can be done sneakily behind the populations back (printing more money or whatever), whereas lowering wages would get noticed. Personally I am always for more transparency, so maybe it is a good thing if the sneaky way to conduct economics goes away.
  - ckuehne 15y ago
    Tichy is right. Devaluation - if at all - works only in the short run [1]. http://johnhcochrane.blogspot.com/2012/01/should-greece-devalue.html http://johnhcochrane.blogspot.com/2012/01/should-greece-deva...

thedaveoflife 15y ago

The lesson from the article isn't that every country should be a net exporter like Germany... it's that Germany has found success by focusing on producing goods and insuring a minimum standard of living for the middle class. While their exact situation may not be repeatable everywhere, there is certainly a lesson in their culture for other nations. You are correct that the Germans have taken advantage of macro-economic imbalances created by the eurozone, but why was it Germany and not France or Greece that has prospered? What is unique about Germany? I would argue it is their culture of hard work, efficient businesses and financial restraint. They do things the right way... why fault them for it?

jennyjitters 15y ago
I agree that there are a multitude of factors that have led Germany to the success they currently see. They have obviously found something that works very well for them (so don't hate!). I don't ever see the US mirroring their work-ethic, but we can certainly look to them to find improvements we can make in our own country. Less consumerism is key but has become so ingrained in US culture that I'm not sure it's a feasible goal. Regardless, I commend Germany for its success.
- lispm 15y ago
  We (the Germans) were told that the US people work harder. They have either well paid jobs without vacation or they have several low-paid jobs. Plus they had to be more flexible, have less protection, drive long to get to their homes in the suburbs,...

lispm 15y ago

Gernan wages are higher than most in the Eurozone. It's just that they were not growing. Plus we added a lot of jobs which are relatively low paid. But many of those jobs don't exist in, say, Spain. In spain you are then unemployed. Which is especially common among young people.

jfoutz 15y ago

It's not obvious at all. exactly two trading partners with seasonal improvements in exports and constantly growing economies could have this sort of export data: http://www.wolframalpha.com/input/?i=x%2B+sin+x%2C+x%2Bcos+x http://www.wolframalpha.com/input/?i=x%2B+sin+x%2C+x%2Bcos+x just cherry pick your reporting dates, everyone is a net exporter.