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> In Germany, it is thanks to European monetary policy that artificially depresses the Deutsche Mark, allowing for cheaper exports and lower costs for German co

> In Germany, it is thanks to European monetary policy that artificially depresses the Deutsche Mark, allowing for cheaper exports and lower costs for German companies, as well as a captive market whose currency is overvalued in exactly the same way destroying local industry (i.e. German loans pay for German cars to be sold to the Europeans but the other way round is much harder). Hello VW, goodbye Rover. The Euro actually appreciated massively between 2000 and 2008 as the German economy recovered [1]. > On top of this Germany is absorbing East Germany which is a handy source of incredibly cheap labour (in the same way that illegal labour is in the US food and farm industry) The pay for the average German auto worker is considerably better than that for the average American auto worker [2]. (Note that this needs to be relativized somewhat because German car companies also employ temp workers that aren't paid that well, but they still make up a minority.) [1] http://www.dollars2euro.com/Charts http://www.dollars2euro.com/Charts (click "All", then "Flip"). [2] http://www.forbes.com/sites/frederickallen/2011/12/21/germany-builds-twice-as-many-cars-as-the-u-s-while-paying-its-auto-workers-twice-as-much/ http://www.forbes.com/sites/frederickallen/2011/12/21/german...

crdb 11y ago
If the "German Euro" was to split from the "not German Euro" tomorrow as the CHF unpegged recently, do you think it would trade higher or lower than it trades now? What would happen to Audi and VW if it was to trade twice as high?
- rbehrends 11y ago
  A fictional "German Euro" would still appreciate relative to the "not German Euro", yes. My point is not that Germany does not benefit from a comparatively weak Euro – it does – but that this doesn't really explain differences between the German and the American automobile industry. It's also not clear that a stronger "German Euro" would necessarily harm German exports. See this article: https://medium.com/@dsquareddigest/what-would-the-german-export-sector-look-like-3d22644daeba https://medium.com/@dsquareddigest/what-would-the-german-exp...
  - crdb 11y ago
    So, your economist might be right, of course, and I am not an economist, just a former junior trader who didn't work out and changed careers. Nevertheless I am pretty sure that if you jack up your prices by 50% overnight, with the prospects of them continuing to rise year on year for decades, you're going to see some price sensitivity. I thus respectfully disagree with the idea that a sudden and large currency appreciation has no effect on a country's exports. Switzerland can get away with it because there are few locations left which respect foreigner property rights so thoroughly (including against their own government, although this is weakening). Nevertheless they were worried by the prospects sufficiently to literally go and support a peg for years.
    - rbehrends 11y ago
      1. I'm not saying that it wouldn't have an effect, just that the effect is difficult to predict and may very well be minimal. 2. Keep in mind that many German export products aren't particularly price-sensitive. Take for example, Delo, a typical German Mittelstand business. They produce smartcard adhesives (inter alia) and have pretty much cornered the world market on that product (a few years ago, about 80%, and a pretty good chunk of the smartphone market, too). The cost of adhesives doesn't really factor in the price of a smartcard and quality is more important, so currency valuations have relatively little effect. 3. Most of the value chain of German car manufacturers was outsourced to Eastern Europe in the 1990s [1]. Much of the effect of any increased export prices would be offset by cheaper imports. 4. I can't think of any effect that would jack up the value of a currency by 50% overnight, short of a major economic disaster. A currency appreciation would almost always be gradual and occur over several years. 5. While we are talking about counterfactuals, keep in mind that the US is a currency union also. Similar effects would result in America if the US dollar were split in, say, a Northern dollar and a Southern dollar. Detroit would suddenly see its cars become more difficult to export, while Tennessee's would become cheaper (just as Eastern Europe's under the Euro counterfactual). [1] https://regulation.revues.org/10663 https://regulation.revues.org/10663
      - crdb 11y ago

crdb 11y ago

If the "German Euro" was to split from the "not German Euro" tomorrow as the CHF unpegged recently, do you think it would trade higher or lower than it trades now? What would happen to Audi and VW if it was to trade twice as high?

rbehrends 11y ago
A fictional "German Euro" would still appreciate relative to the "not German Euro", yes. My point is not that Germany does not benefit from a comparatively weak Euro – it does – but that this doesn't really explain differences between the German and the American automobile industry. It's also not clear that a stronger "German Euro" would necessarily harm German exports. See this article: https://medium.com/@dsquareddigest/what-would-the-german-export-sector-look-like-3d22644daeba https://medium.com/@dsquareddigest/what-would-the-german-exp...
- crdb 11y ago
  So, your economist might be right, of course, and I am not an economist, just a former junior trader who didn't work out and changed careers. Nevertheless I am pretty sure that if you jack up your prices by 50% overnight, with the prospects of them continuing to rise year on year for decades, you're going to see some price sensitivity. I thus respectfully disagree with the idea that a sudden and large currency appreciation has no effect on a country's exports. Switzerland can get away with it because there are few locations left which respect foreigner property rights so thoroughly (including against their own government, although this is weakening). Nevertheless they were worried by the prospects sufficiently to literally go and support a peg for years.
  - rbehrends 11y ago
    1. I'm not saying that it wouldn't have an effect, just that the effect is difficult to predict and may very well be minimal. 2. Keep in mind that many German export products aren't particularly price-sensitive. Take for example, Delo, a typical German Mittelstand business. They produce smartcard adhesives (inter alia) and have pretty much cornered the world market on that product (a few years ago, about 80%, and a pretty good chunk of the smartphone market, too). The cost of adhesives doesn't really factor in the price of a smartcard and quality is more important, so currency valuations have relatively little effect. 3. Most of the value chain of German car manufacturers was outsourced to Eastern Europe in the 1990s [1]. Much of the effect of any increased export prices would be offset by cheaper imports. 4. I can't think of any effect that would jack up the value of a currency by 50% overnight, short of a major economic disaster. A currency appreciation would almost always be gradual and occur over several years. 5. While we are talking about counterfactuals, keep in mind that the US is a currency union also. Similar effects would result in America if the US dollar were split in, say, a Northern dollar and a Southern dollar. Detroit would suddenly see its cars become more difficult to export, while Tennessee's would become cheaper (just as Eastern Europe's under the Euro counterfactual). [1] https://regulation.revues.org/10663 https://regulation.revues.org/10663
    - crdb 11y ago