Breaking a Taboo

PARIS/BERLIN | | frankreich

PARIS/BERLIN (Own report) - Paris is protesting Germany's growing economic hegemony over the EU with unusual bluntness. France's finance minister declared in a newspaper interview that, for years, Berlin has been forcefully implementing its export offensive at the expense of other Euro countries. As can now be seen in Greece, this German trade surplus is pushing these countries into a crisis and may be unsustainable for them in the long run. After years of cutting wages and social welfare services, Berlin should consider boosting its domestic demand. The German government is resolutely rejecting these French demands, which are supported by other Euro countries and thereby exacerbating the dispute. When the German finance minister presented his plan for a European Monetary Fund in Brussels on Monday, which would pressure other Euro countries to follow the German example of austerity measures, he was met with resistance. With its austerity measures, Germany would like to be able to continue to economically compete with the world powers and forge itself a sufficient economic foundation to be a world power.

German Export Offensive

French criticism, termed by the business press as "unusually blunt" [1], is focused on Germany's export offensive over the past few years. To increase its exports, Berlin has adopted a policy of low wages and cuts in social welfare expenditures, which successfully cut production costs significantly in relationship to other Euro nations, thereby promoting German exportation. The German trade surplus has risen sharply, particularly in relationship to southern Euro nations, for example Greece, (german-foreign-policy.com reported [2]) but also Spain. In 2008, the Spanish deficit in trade with Germany reached 22 billion Euros, a minus that was attenuated a bit through tourism, but Spain still maintains a larger industrial deficit toward Germany. The business press clearly says that Berlin's export offensive has contributed to Greece's crisis. In one commentary in January, one reads that since the German "work force is contented with low wages, the export steamroller is again bowling over its European rivals".[3]

"Not a Sustainable Model"

With the crisis in 'Greece, the imbalance within the Eurozone is taking on such proportions that Paris feels compelled to publicly express its criticism. As the French Minister of Finance, Christine Lagarde, expressed in an interview, published in the Financial Times, Monday, Berlin has to boost its internal demand; this could help those countries that have a strong trade deficit toward Germany, to again become competitive and balance their national budgets. She doubts if the German austerity policy "is a sustainable model for the long term and for the whole of the group" of Euro nations. "It cannot just be about enforcing deficit principles," she said.[4] In fact, German export success is, to a large extent, due to countries, such as France, currently concentrating less on exports and more on enhancing the internal demand - and therefore also promoting the sale of German commodities.

Imbalance

The Financial Times notes that the finance minister's comments "break a longstanding taboo between the French and German governments" to speak about macroeconomic imbalances inside the Eurozone - an imbalance that reaps record exports for Germany and a serious crisis for the southern Euro nations.[5]

Early Warning Report

This is creating resentment toward Berlin in several EU countries. The boulevard press reported that the German EU representation has compiled its own "early warning report," in which it literally states: Germany is "being accused by some proponents of using its export oriented economic model to achieve its economic growth at the expense of other" Euro nations. Berlin could come under pressure, to "relativize the competitive advantages it has acquired" to reduce problems for countries such as Greece. The EU Commission plans to issue a report that "could prove problematic" for the German government.[6] Germany defends itself against the criticism with harsh words. To demand from the German "export economy that it produce unattractive commodities, would be in contradiction to the competitive spirit," explained a government spokesperson.[7] In the German media, the tone is becoming more aggressive toward France. For example France is being accused of "Germany bashing" [8] and of being driven by pure "envy" [9].

EMF

The conflict over the rigid German austerity policy is also being waged in the dispute concerning the European Monetary Fund (EMF). The suggestion, patterned after concepts developed in Paris for the coordination of the EU's economic policy, was recently adopted by the German Finance Minister, Wolfgang Schaeuble. But Schaeuble's plans - running essentially counter to the French concepts - provide for more severe sanctions for the rigid EU Stability and Growth Pact deficit criteria, (german-foreign-policy.com reported [10]) and therefore increases pressure on nations that resist German austerity precepts. As Schaeuble's French counterpart explained, the Euro nations should concentrate on their current "soft laws" rather than the EMF, in order to strengthen "budgetary discipline."[11] Even the EU's Commissioner for economic and Monetary Affairs, Joaquín Almunia, from Spain, is for the time being opposing the creation of an EMF.

World Power and Poverty

The motor behind the German export policy is Berlin's efforts to be able to continue to economically compete with the world powers and forge for itself a sufficient economic foundation to be able to attain its own world power status. "Our main competitors are no longer sitting in the EU but in the USA and Japan as well as in the ambitious threshold nations such as China and India," explained a speaker for the German Foreign Trade Association, BGA.[12] By-products of this world power policy are growing inequality and poverty. According to an Organization for Economic Cooperation and Development (OECD) study, both increased in Germany faster than in any other OECD nation in the years from 2000 to 2005 - when the German government oriented itself fully toward export and applied its low-wage policy."[13] The number of Germans living in relative poverty at the beginning of the 1990s was around one-fourth below the OECD average; today it is above the average. Recent studies confirm that the social gap in Germany is widening still further.

[1] Lagarde criticises Berlin policy; Financial Times 15.03.2010
[2] see also The End of Sovereignty (III)
[3] Der wahre Teuro; WirtschaftsWoche 18.01.2010. See also The End of Sovereignty (II)
[4] Lagarde criticises Berlin policy; Financial Times 15.03.2010
[5] see also The End of Sovereignty (II) and Vor dem Sturm
[6] EU will deutsche Wirtschaft ausbremsen; Bild 15.03.2010
[7] Deutsche Wirtschaft wettert gegen Lagarde; www.manager-magazin.de
[8] Frankreich drängt Deutsche zu Export-Fairplay; Spiegel Online 15.03.2010
[9] Frankreich will deutschen Export ausbremsen; www.welt.de 15.03.2010
[10] see also Germanic Stringency
[11] Lagarde criticises Berlin policy; Financial Times 15.03.2010
[12] Kritik aus Frankreich empört deutsche Exporteure; www.welt.de 15.03.2010
[13] In Deutschland sind Einkommensungleichheit und relative Armut und in den vergangenen Jahren stärker gewachsen als im OECD-Schnitt; www.oecd.org 21.10.2008