The Germany Shock: the largest economy nobody understands
January 28, 2020 6:56 AM Subscribe
I would be interested in looking at the EU Common Market as a country instead of just Germany. From the charts France is running a deficit almost as big as Germany's surplus, so the whole thing might even out in the end (or they're all trading with each other so it won't even show up).
posted by jmauro at 7:30 AM on January 28, 2020 [1 favorite]
posted by jmauro at 7:30 AM on January 28, 2020 [1 favorite]
Haven't gotten all the way through this, but I'm surprised he hasn't discussed the fact that all this is happening during a massive change in energy production.
In a single decade:
Electricity generation 2009: 25.0% nuclear, 18.5% renewables, the rest coal and gas
Electricity generation 2019: 13.8% nuclear, 46.2% renewables, the rest coal and gas
posted by gwint at 7:44 AM on January 28, 2020 [23 favorites]
In a single decade:
Electricity generation 2009: 25.0% nuclear, 18.5% renewables, the rest coal and gas
Electricity generation 2019: 13.8% nuclear, 46.2% renewables, the rest coal and gas
posted by gwint at 7:44 AM on January 28, 2020 [23 favorites]
Based on a speed read this seems quite interesting, but I do take issue with the framing: people in the EU talk about this quite regularly. In my experience, when Europeans resent the EU and Germany, its usually because they believe that Germany has guided the development of the EU to put itself in exactly this favourable position, and leaving many other countries in the lurch.
posted by Alex404 at 7:52 AM on January 28, 2020 [22 favorites]
posted by Alex404 at 7:52 AM on January 28, 2020 [22 favorites]
I'm not an economist, nor do I easily understand wonky stuff like this, so I more-or-less skimmed it. But, one of my my take-aways from it seems to be "Germany's a powerhouse economy and is doomed to fail, and the UK has a really bright future." It's almost a slightly pro-Brexit take. At least that's how some of it hit me.
Also, they don't seem to directly address it, but how does Germany being home to the world's largest automaker, as well as four of the worlds largest/most popular luxury car brands influence the numbers, or weight Germany's reliance on a single manufacturing sector?
posted by Thorzdad at 8:02 AM on January 28, 2020
Also, they don't seem to directly address it, but how does Germany being home to the world's largest automaker, as well as four of the worlds largest/most popular luxury car brands influence the numbers, or weight Germany's reliance on a single manufacturing sector?
posted by Thorzdad at 8:02 AM on January 28, 2020
its usually because they believe that Germany has guided the development of the EU to put itself in exactly this favourable position, and leaving many other countries in the lurch.
I thought the whole Greek Financial Crisis (and Spain, Portugal, Italy, etc) pretty much moved this from belief into fact. Whole options normally available to regular countries just wasn't there because Germany was unwilling to suffer any pain required to implement them in the shared currency/customs market.
posted by jmauro at 8:25 AM on January 28, 2020 [11 favorites]
I thought the whole Greek Financial Crisis (and Spain, Portugal, Italy, etc) pretty much moved this from belief into fact. Whole options normally available to regular countries just wasn't there because Germany was unwilling to suffer any pain required to implement them in the shared currency/customs market.
posted by jmauro at 8:25 AM on January 28, 2020 [11 favorites]
Importing more than you export is not losing, and exporting more than you import is not winning. The US has been growing its economy a bit faster than Germany despite "losing" at trade - even if we accept the framing that economies are measured by making stuff and consuming it.
Not that focusing on GDP is a perfect way of looking at economies, but it's better than this kind of nationalism.
posted by Easy problem of consciousness at 8:44 AM on January 28, 2020 [7 favorites]
Not that focusing on GDP is a perfect way of looking at economies, but it's better than this kind of nationalism.
posted by Easy problem of consciousness at 8:44 AM on January 28, 2020 [7 favorites]
In my experience, when Europeans resent the EU and Germany, its usually because they believe that Germany has guided the development of the EU to put itself in exactly this favourable position, and leaving many other countries in the lurch.
I thought the whole Greek Financial Crisis (and Spain, Portugal, Italy, etc) pretty much moved this from belief into fact.
The article sets out early on how Germany is able to favour its manufacturing sector by keeping the currency artificially weak through the currency union. However, the issue with the European Sovereign Debt Crisis was that the ECB (leant on by Germany) would not allow the peripheral eurozone countries to further weaken the euro either by devaluation or money issuance, both of which probably would have helped.
So in both cases the resentment stems from the perception that Germany has too much influence on eurozone monetary policy, or Germany gains from being in the eurozone while others lose out. But the examples aren't the same: the value of the euro is favourably low for Germany in one example, and favourably high in the other.
posted by chappell, ambrose at 8:51 AM on January 28, 2020 [4 favorites]
I thought the whole Greek Financial Crisis (and Spain, Portugal, Italy, etc) pretty much moved this from belief into fact.
The article sets out early on how Germany is able to favour its manufacturing sector by keeping the currency artificially weak through the currency union. However, the issue with the European Sovereign Debt Crisis was that the ECB (leant on by Germany) would not allow the peripheral eurozone countries to further weaken the euro either by devaluation or money issuance, both of which probably would have helped.
So in both cases the resentment stems from the perception that Germany has too much influence on eurozone monetary policy, or Germany gains from being in the eurozone while others lose out. But the examples aren't the same: the value of the euro is favourably low for Germany in one example, and favourably high in the other.
posted by chappell, ambrose at 8:51 AM on January 28, 2020 [4 favorites]
Almost every week of the late 90's, WSJ or The Economist ran a "Germany: Outsource and Shift to Services or Die" thinkpiece decrying all the money wasted on worker training and manufacturing R&D instead of financial innovation.
Post-dotcom crash these articles slowed to a trickle, during the Great Recession they became, "Why is Germany Mysteriously Ok?"
Decades after turning the US & UK into 737 MAX economies, economists are still trying to use high-level policy/finance explanations for why Germany is ok, struggling mightily to come up with alternative explanations to paying people decent wages to make nice things.
The author of TFA mentions as an aside that Korea is also kinda like Germany, and then ignores the similarity to Germany-- a robust labor movement that helped secure political rights-- and throws his hands up because Korea doesn't fit his monetary policy framework.
posted by head full of air at 8:52 AM on January 28, 2020 [79 favorites]
Post-dotcom crash these articles slowed to a trickle, during the Great Recession they became, "Why is Germany Mysteriously Ok?"
Decades after turning the US & UK into 737 MAX economies, economists are still trying to use high-level policy/finance explanations for why Germany is ok, struggling mightily to come up with alternative explanations to paying people decent wages to make nice things.
The author of TFA mentions as an aside that Korea is also kinda like Germany, and then ignores the similarity to Germany-- a robust labor movement that helped secure political rights-- and throws his hands up because Korea doesn't fit his monetary policy framework.
posted by head full of air at 8:52 AM on January 28, 2020 [79 favorites]
This is maybe unfair, but a ten-minute scan of TFA and a two-minute scan of the website makes it look like this guy has found some interesting stuff that's new to him and doesn't realize that, as Alex404 has already pointed out, this is well-canvassed territory. Germany has a strong export-based economy, Germany benefits from EU monetary policy. Also, you don't make yourself look like an expert when you say that Germany has "no good maritime ports" and I'm like "wait, what about Hamburg and Bremen" and I go to wikipedia and find that they're the third- and fourth-busiest container ports in Europe.
posted by sy at 9:19 AM on January 28, 2020 [20 favorites]
posted by sy at 9:19 AM on January 28, 2020 [20 favorites]
The author of TFA mentions as an aside that Korea is also kinda like Germany, and then ignores the similarity to Germany-- a robust labor movement that helped secure political rights-- and throws his hands up because Korea doesn't fit his monetary policy framework.
This is the core of it right here, but he's also correct in that Germany has drawn more benefit from the Eurozone than most other economies in part because of the buffering effect of the price of the Euro not as directly tied to higher standard of living/higher labor costs that the Deutsche Mark would. But then, California benefits in a lot of ways by the Dollar pricing in the relative lower productivity and poor economic performance of most Red States.
I have a feeling that the EU as it stands is not indefinitely sustainable, and that the future will either be fragmentation (more *xits) or a move toward federalization.
posted by tclark at 9:20 AM on January 28, 2020 [2 favorites]
This is the core of it right here, but he's also correct in that Germany has drawn more benefit from the Eurozone than most other economies in part because of the buffering effect of the price of the Euro not as directly tied to higher standard of living/higher labor costs that the Deutsche Mark would. But then, California benefits in a lot of ways by the Dollar pricing in the relative lower productivity and poor economic performance of most Red States.
I have a feeling that the EU as it stands is not indefinitely sustainable, and that the future will either be fragmentation (more *xits) or a move toward federalization.
posted by tclark at 9:20 AM on January 28, 2020 [2 favorites]
I thought the whole Greek Financial Crisis (and Spain, Portugal, Italy, etc) pretty much moved this from belief into fact. Whole options normally available to regular countries just wasn't there because Germany was unwilling to suffer any pain required to implement them in the shared currency/customs market.
This is the one and only argument in favor of Brexit that I could find.
posted by ocschwar at 9:56 AM on January 28, 2020
I remember when during the Greek debt crisis the narrative was that Germany had shoehorned Greece into the Eurozone despite them not really qualifying so as to depress the Euro and help German exports...
posted by BungaDunga at 10:14 AM on January 28, 2020 [2 favorites]
posted by BungaDunga at 10:14 AM on January 28, 2020 [2 favorites]
This is the one and only argument in favor of Brexit that I could find.
The UK already had the ability to devalue the pound and lower interest rates as much as they liked with or without Brexit. Sure it's easier with Brexit because the market will do it for you but Brexit is not necessarily a requirement.
posted by Your Childhood Pet Rock at 11:22 AM on January 28, 2020 [14 favorites]
The UK already had the ability to devalue the pound and lower interest rates as much as they liked with or without Brexit. Sure it's easier with Brexit because the market will do it for you but Brexit is not necessarily a requirement.
posted by Your Childhood Pet Rock at 11:22 AM on January 28, 2020 [14 favorites]
This was interesting but I think the statement that "I’m just pointing out that the criteria [for joining the EU] preclude anyone running even half of China’s playbook from joining. Government-funded winners?" ignores that German industrial policy, as well as other EU Member States has often attempted to pick winners, with various levels of success. Institutionally, Germany has much stronger links between industry, finance and government and much greater willingness to engage in planning which takes in all three. It seems this willingness to engage in industrial coordination may offer some benefits that Bastable's argument might have usefully considered, since it is also apparent in Japan and I suspect some other locations.
posted by biffa at 1:01 PM on January 28, 2020
posted by biffa at 1:01 PM on January 28, 2020
The author of TFA mentions as an aside that Korea is also kinda like Germany, and then ignores the similarity to Germany-- a robust labor movement that helped secure political rights-- and throws his hands up because Korea doesn't fit his monetary policy framework.
I'd definitely be interested in reading a piece about that if you have one. (Seems like it'd make a good FPP.)
posted by tobascodagama at 1:02 PM on January 28, 2020 [2 favorites]
I'd definitely be interested in reading a piece about that if you have one. (Seems like it'd make a good FPP.)
posted by tobascodagama at 1:02 PM on January 28, 2020 [2 favorites]
The main thing I took away from this post is that there's a big stylistic overlap in both rhetorical tone and over-use of formatting between young economics bloggers, YouTube film critics and conspiracy theorists. [OK, boomer]
posted by mikelynch at 1:05 PM on January 28, 2020 [4 favorites]
posted by mikelynch at 1:05 PM on January 28, 2020 [4 favorites]
What I'm understanding from the article that's fascinating is not that Germany produces/exports, but that countries that produce and export usually have problems with their currencies rising in value. So the point being made in simple words is that Germany, by teaming up on the Euro with a bunch of weaker countries economically, can keep the value of their currency low in the eyes of international trade without resorting to cheating the way China does.
posted by mit5urugi at 1:59 PM on January 28, 2020 [5 favorites]
posted by mit5urugi at 1:59 PM on January 28, 2020 [5 favorites]
Right but people were making that exact point during the Euro crisis and blaming Germany for having let an economic basketcase inside the Eurozone to shore up their export industry.
It's just weirdly presented as if nobody had noticed it before. I hadn't, until the Euro crisis, and then I did, because people were talking about it. Maybe people stopped talking about it, but it was a big deal circa 2013!
posted by BungaDunga at 2:18 PM on January 28, 2020 [1 favorite]
It's just weirdly presented as if nobody had noticed it before. I hadn't, until the Euro crisis, and then I did, because people were talking about it. Maybe people stopped talking about it, but it was a big deal circa 2013!
posted by BungaDunga at 2:18 PM on January 28, 2020 [1 favorite]
This is the one and only argument in favor of Brexit that I could find.
I heard they are replacing the Pound with 50p Brexit coins.
posted by srboisvert at 2:27 PM on January 28, 2020
I heard they are replacing the Pound with 50p Brexit coins.
posted by srboisvert at 2:27 PM on January 28, 2020
Right but people were making that exact point during the Euro crisis and blaming Germany for having let an economic basketcase inside the Eurozone to shore up their export industry.
People like to give the Eurozone a lot of shit. If there's one thing in vogue no matter one's political persuasion or nationality, it's that the Eurozone/Germany is to blame for everything. It's one of those damned if you do, damned if you don't things though. If the periphery don't enter the currency union they have the drag of currency costs on all their export industries. If they do enter the currency union they have the drag of not being able to deflate thepeseta lira drachma to make up for shitty economic management.
It's only during times of strife that people actually point this out. The rest of the time when the periphery has had access to gobs of cheap money with no inflation? Nobody really gave a shit or a peep then. It's not like the practical effects of being outside the Eurozone are any different, the real wages of workers come down. Workers just don't notice their non-Euro currency buying slightly less bread while watching the number of Euros in their paycheck drop will foment revolution which is pretty much the only reason why being outside the Eurozone would even be preferable.
Most of the economies were able to get out of their situations faster and come back stronger for it with the ECB (eventually) backing them up. Even Greece, the poster child of evil neoliberal technocratic EU austerity being forced upon the people, is getting out of its mess without a decade of massive inflation and the ensuing extra zero on the drachma and ridiculously expensive imports, which was the usual way that Greece paid penance for its economic sins prior to the EU. I do believe that the people are better today than they were at a similar stage in 1990 and I do believe the Eurozone is to thank for that.
posted by Your Childhood Pet Rock at 4:28 PM on January 28, 2020 [10 favorites]
People like to give the Eurozone a lot of shit. If there's one thing in vogue no matter one's political persuasion or nationality, it's that the Eurozone/Germany is to blame for everything. It's one of those damned if you do, damned if you don't things though. If the periphery don't enter the currency union they have the drag of currency costs on all their export industries. If they do enter the currency union they have the drag of not being able to deflate the
It's only during times of strife that people actually point this out. The rest of the time when the periphery has had access to gobs of cheap money with no inflation? Nobody really gave a shit or a peep then. It's not like the practical effects of being outside the Eurozone are any different, the real wages of workers come down. Workers just don't notice their non-Euro currency buying slightly less bread while watching the number of Euros in their paycheck drop will foment revolution which is pretty much the only reason why being outside the Eurozone would even be preferable.
Most of the economies were able to get out of their situations faster and come back stronger for it with the ECB (eventually) backing them up. Even Greece, the poster child of evil neoliberal technocratic EU austerity being forced upon the people, is getting out of its mess without a decade of massive inflation and the ensuing extra zero on the drachma and ridiculously expensive imports, which was the usual way that Greece paid penance for its economic sins prior to the EU. I do believe that the people are better today than they were at a similar stage in 1990 and I do believe the Eurozone is to thank for that.
posted by Your Childhood Pet Rock at 4:28 PM on January 28, 2020 [10 favorites]
This ¿essay? feels confused and hand wavy to me most of the way through. I think it just says that Germany has an export-oriented economy. I buy that. The only other bit I got was that it’s because of monetary policy. I doubt that. Well, let’s say it’s reductive and as others have pointed out, a common axe to grind. That part is presented in a way that sounds to me like Charlie Day investigating Pepe Sylvia.
posted by putzface_dickman at 6:56 PM on January 28, 2020 [1 favorite]
posted by putzface_dickman at 6:56 PM on January 28, 2020 [1 favorite]
its usually because they believe that Germany has guided the development of the EU to put itself in exactly this favourable position, and leaving many other countries in the lurch.
I thought the whole Greek Financial Crisis (and Spain, Portugal, Italy, etc) pretty much moved this from belief into fact. Whole options normally available to regular countries just wasn't there because Germany was unwilling to suffer any pain required to implement them in the shared currency/customs market.
A lucidly clear read on all of this from the perspective of the Greek Finance Minister at the start of the Crisis negotiations with the EU - Yanis Varoufakis - in his book "And the Weak Suffer What they Must?"
Note that I would overlook the reviewer's blatant British anti foreignerisms, Varoufakis comes across as someone who knows what he's doing and talking about.
posted by Mrs Potato at 3:04 AM on January 29, 2020
I thought the whole Greek Financial Crisis (and Spain, Portugal, Italy, etc) pretty much moved this from belief into fact. Whole options normally available to regular countries just wasn't there because Germany was unwilling to suffer any pain required to implement them in the shared currency/customs market.
A lucidly clear read on all of this from the perspective of the Greek Finance Minister at the start of the Crisis negotiations with the EU - Yanis Varoufakis - in his book "And the Weak Suffer What they Must?"
Note that I would overlook the reviewer's blatant British anti foreignerisms, Varoufakis comes across as someone who knows what he's doing and talking about.
posted by Mrs Potato at 3:04 AM on January 29, 2020
Also, you don't make yourself look like an expert when you say that Germany has "no good maritime ports"
and you don't understand that most of Germany's exporting/importing comes through the Netherlands and Rotterdam in particular.
posted by MartinWisse at 4:17 AM on January 29, 2020 [2 favorites]
and you don't understand that most of Germany's exporting/importing comes through the Netherlands and Rotterdam in particular.
posted by MartinWisse at 4:17 AM on January 29, 2020 [2 favorites]
Anyway, most of this is the usual conspiracy bollocks about how the German economy works, tapping in to old fears about the Germans losing the wars but winning the peace and there is a kernel of truth in it, but no more than that.
Because it's outside looking in and I'm skeptical the author can read German (let alone Chinese) it has a skewed image of Germany as supremely stronk, supremely successful that doesn't match the view from inside.
Frex, one of the very real problems Germany has to cope with is that it actually underpays its workers out of that obsession with remaining a strong economy.
posted by MartinWisse at 4:24 AM on January 29, 2020 [3 favorites]
Because it's outside looking in and I'm skeptical the author can read German (let alone Chinese) it has a skewed image of Germany as supremely stronk, supremely successful that doesn't match the view from inside.
Frex, one of the very real problems Germany has to cope with is that it actually underpays its workers out of that obsession with remaining a strong economy.
posted by MartinWisse at 4:24 AM on January 29, 2020 [3 favorites]
Importing more than you export is not losing, and exporting more than you import is not winning. The US has been growing its economy a bit faster than Germany despite "losing" at trade - even if we accept the framing that economies are measured by making stuff and consuming it.
I don't think he is endorsing this simplified idea of "losing at trade" - though he is sort of taking it as a given that the reader knows that economists don't conventionally endorse this view and then pushing back on the also simplified idea that trade could never be a net negative.
posted by atoxyl at 6:55 AM on January 29, 2020 [1 favorite]
I don't think he is endorsing this simplified idea of "losing at trade" - though he is sort of taking it as a given that the reader knows that economists don't conventionally endorse this view and then pushing back on the also simplified idea that trade could never be a net negative.
posted by atoxyl at 6:55 AM on January 29, 2020 [1 favorite]
He gives a definition of "losing at trade" in fact:
International competition can reduce employment in one geographic region without producing an offsetting increase in employment in that same region
and a reason it can happen (network effects/economic activity supported by the manufacturing base).
He then also acknowledges other things an economy can be built around many times - he's just also arguing that the damage done by loss of manufacturing can be underrated/connected to specific trends that can be considered negative.
posted by atoxyl at 8:43 AM on January 29, 2020 [1 favorite]
International competition can reduce employment in one geographic region without producing an offsetting increase in employment in that same region
and a reason it can happen (network effects/economic activity supported by the manufacturing base).
He then also acknowledges other things an economy can be built around many times - he's just also arguing that the damage done by loss of manufacturing can be underrated/connected to specific trends that can be considered negative.
posted by atoxyl at 8:43 AM on January 29, 2020 [1 favorite]
We talk about this in Germany sometimes, but, usually we're just too busy exporting!
... We're as suspectable to financial crisises as other countries are. During the great recession, the government threw a lot of help (= cash) to industry. Had it lasted longer, how long would many of those medium sized manufacturers have survived?
The current recovery, this being an export economy, is surely largely based on our trading partners' economies doing well.
posted by romanb at 7:07 PM on January 29, 2020 [1 favorite]
... We're as suspectable to financial crisises as other countries are. During the great recession, the government threw a lot of help (= cash) to industry. Had it lasted longer, how long would many of those medium sized manufacturers have survived?
The current recovery, this being an export economy, is surely largely based on our trading partners' economies doing well.
posted by romanb at 7:07 PM on January 29, 2020 [1 favorite]
Having read the article again in full, I think what's missing is a more regional view of European industrial and high-tech regions. Northern Italy, Catalunya, south Germany and south/west Poland, the Czech Republic.
Brandenburg and Mecklenburg-Vorpommern are not the same as Bavaria and Baden-Württemberg. Likewise Catalunya vs. Andalusia, Lower Silesian vs. Warmian-Masurian Voivodeship and so on.
Viewing it from that angle, the EU has several industrial exporting areas. Germany may have the biggest one, but once you factor in population, it's not so black and white and that's what this article is missing.
Also glossed over: countries like the Netherlands don't simply trade, they also produce. A lot.
posted by romanb at 1:19 AM on January 30, 2020 [3 favorites]
Brandenburg and Mecklenburg-Vorpommern are not the same as Bavaria and Baden-Württemberg. Likewise Catalunya vs. Andalusia, Lower Silesian vs. Warmian-Masurian Voivodeship and so on.
Viewing it from that angle, the EU has several industrial exporting areas. Germany may have the biggest one, but once you factor in population, it's not so black and white and that's what this article is missing.
Also glossed over: countries like the Netherlands don't simply trade, they also produce. A lot.
posted by romanb at 1:19 AM on January 30, 2020 [3 favorites]
Note that I would overlook the reviewer's blatant British anti foreignerisms, Varoufakis comes across as someone who knows what he's doing and talking about.
Varoufakis is a self promoter whose careless antics did nothing for Greece. I don't doubt that he comes across well in his own book though.
Frex, one of the very real problems Germany has to cope with is that it actually underpays its workers out of that obsession with remaining a strong economy.
Yes, odd not to see that mentioned. Even large German labour unions are involved in this as they would prefer to keep the manufacturing jobs at current wages than see manufacturing move out of Germany. This might seem like a sensible idea but it also supresses German domestic demand which makes them even more reliant on export earnings.
posted by atrazine at 6:11 AM on January 30, 2020 [3 favorites]
Varoufakis is a self promoter whose careless antics did nothing for Greece. I don't doubt that he comes across well in his own book though.
Frex, one of the very real problems Germany has to cope with is that it actually underpays its workers out of that obsession with remaining a strong economy.
Yes, odd not to see that mentioned. Even large German labour unions are involved in this as they would prefer to keep the manufacturing jobs at current wages than see manufacturing move out of Germany. This might seem like a sensible idea but it also supresses German domestic demand which makes them even more reliant on export earnings.
posted by atrazine at 6:11 AM on January 30, 2020 [3 favorites]
It's just weirdly presented as if nobody had noticed it before.
Seriously. Is there a Betteridge's law equivalent for the phrase "and nobody talks about it?"
Not big into credential-policing but there's nothing about this luminary's CV that would lead me to engage him seriously on this subject, especially as he clearly can't even be arsed to read a couple articles in the fucking Economist.
posted by aspersioncast at 10:57 AM on January 30, 2020
Seriously. Is there a Betteridge's law equivalent for the phrase "and nobody talks about it?"
Not big into credential-policing but there's nothing about this luminary's CV that would lead me to engage him seriously on this subject, especially as he clearly can't even be arsed to read a couple articles in the fucking Economist.
posted by aspersioncast at 10:57 AM on January 30, 2020
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