Don’t lash out at ‘Made in Germany’

European solidarity is certainly one of weakest elements of the European project, but no solution will be found if we continue to undermine the project's virtues and fail to address its flaws.

The idea is simple: Germany must spend more so that the countries of the south, such as Portugal, can expand their markets and sell their products. The idea is noble-minded, and it’s based on a conviction that the Germans are taking advantage of the eurozone.

Why? Because if they had the German mark instead of the euro, their currency would be even stronger, which would undermine their competitiveness – their exports. What’s more, due to the financial fragmentation of the euro, the German banks and the state itself have become the refuge of international investors capable of paying the high price of enjoying the security of the largest economy in the single currency.

Yes, solidarity is being demanded from Germany, particularly as some countries, such as Portugal, must adjust their economies the hard way and do it quickly. The question is: what should Germans do to promote the economic power of Europe and a project that they claim they want to defend?

Merkel Plan for infrastructure?

[[At the risk of being accused of a lack of patriotism, I do not believe that the solution involves an increase in spending in Germany]]. Firstly, there’s the question of who must spend more: businesses or the state? It is difficult, if not impossible, to impose on German companies salary increases that would eat away at their competitiveness. Therefore, only intervention by the government could guarantee that they would do that.

As we have been seeing in Europe, this solution is not possible. This leaves the state. Is that the idea? To take advantage of historically low interest rates – and even lower for Germany – to inject liquidity into the European economy, putting in place for example a kind of Merkel Plan for infrastructure? Is this the right answer? The recent past advises us against these practices, because the results will almost certainly be just as bad.

We live in a single monetary zone, stamped by large disparities in the financial blueprints. It is here, at this level, where Europeans should demand another type of solidarity from Germany, to rebalance the external imbalances within the euro. If a deficit of 6 per cent in the balance of current transactions is bad, a surplus of 6 per cent in another country of the same monetary area is not desirable either. How to correct these imbalances?

For example, by putting in place a genuine economic government of the eurozone, in which more sovereignty would be shared, and by establishing a true banking union, which has not yet seen the light of day. These are the two aspects that the European Commission and the leaders of the countries of the south should focus on, instead of wasting their time asking the Germans not to be German.

European Union

German economy too competitive for Europe

“Brussels accuses Germany of exacerbating the crisis,” headlines Le Monde, in the wake of the November 13 decision by the European Commission “to open a comprehensive investigation of Germany’s current account surplus [due to its high level of exports].” Brussels believes that this year the surplus will amount to 7 per cent of GDP, as it did in 2012: “that is to say that it will be over the 6 per cent threshold identified when this macroeconomic monitoring instrument was established in 2011.”

“This is a major first for Germany,” notes the daily.

For its part, Il Sole 24 Ore explains that the imbalance undermines the single currency, because it gives Germany a competitive advantage over other eurozone countries which is not offset by a re-evaluation of its own currency. The procedure launched by Brussels will not be completed before the spring of next year, remarks the Italian daily, adding —

Some economists believe that the reduction of the imbalance should come from Berlin, which ought to increase imports from Eurozone countries in difficulty or increase wages. […] But it seems that Germany is not keen to embark in this direction: the main German industrial firms are targeting alternative prospects to Europe, which currently accounts for around half of the trade surplus.