France teaches Germany macroeconomics
Piotr Mączka, March 30, 2010
Next to the discussion on the future of the European currency another debate is taking place: what is the common European strategy for development?
In a recent interview for the British Financial Times the French Minister of Economy and Finance Christie Lagarde accused Germany of paying too much attention to exports and neglecting the development of the private consumption of households in the internal market. He claimed that by reducing labor costs the German economy hurts other European countries. These low costs generate a surplus in foreign trade, which also translates into lower export opportunities in other European countries. He has called the German government to take action to make "a little something" in the direction of raising wages and lowering taxes, which will improve the export of other EU countries to Germany. Additionally, it has been pointed out that it was the surplus in exports - particularly in China – that caused the global crisis. It is well known that China is competing with Germany for the title of "world exporter"
According to available statistics, in 2009 Germany exported goods worth 803.2 billion euros. At the same time the value of import reached 667.1 billion euros. The largest partner was France, which reached about 10% of German exports (81 billion euro ), and accounted for about 6% of imports (about 54 billion). So when it comes to trade balance with Germany, France reached 27 billion Euro deficit.
The first reactions of government in Germany were quite quick and straightforward. Jörg Asmussen, economic advisor in Chancellery, neglects the initiated the debate, believing that reducing the competitiveness of Europe's largest economy will hurt the entire European Union. He also recalled that Europe has failed to achieve the Lisbon objectives in 2010, among them achieving greater competitiveness of European goods and services compared to other national markets in the world.
Chancellor Angela Merkel during a debate on public finances in Bundestag, said: "We will not undermined our strength, just because our products are purchased more frequently than the one produced by other countries in Europe."
Despite these statements, the French Minister in another interview (this time in radio), urges Germany to lower taxes (VAT) so that France was able to export more to Germany (the strength of the French economy are consumer goods such as cosmetics, fashion, food).
Further presentation of German point of view was made by Commissioner for Energy Günter Oettinger who believes that the French argument is flawed, because Germany did not compete in Europe, but it did with their opponents such as Japan, USA and other developing countries - China and India.
Andreas Schwarz, spokesman of German Exporters Association (BGA), expressed other arguments. He believes that German exporters did their homework. They do not compete when it comes to prices (because of China it is not possible), but they concentrate on quality and innovation.
Süddeutsche Zeitung even published an article that sums up the French debate on the subject. It is noted that the minister is a lawyer, and has to learn the rights of macroeconomics. Although he has been nearly 2 years on the position, he is not either a declared supporter of state intervention, or a follower of the liberal laws of the market. Additionally, 2 years in the Minister of Economy of France is not a long period compared to predecessors. His conservatism had earned him the recognition from President Sarkozy. Newspapers report that the first follower of the "theory about the dangers of German exports” was a French economist Jean-Paul Fitoussi, associated with the institute OFCE. So far, however, the concept was only presented in academic debates. For the first time, thanks to Ms. Legarda, a French government representative criticized Germany. But you can hear other opinions as well. For example, Patrick Artus - considered in Germany a model to follow, recommends that the German entrepreneurs share profits with employees.
German Minister of Economy Rainer Brüderle speaks about a model to follow, so called benchmark. In some ways he agrees with his French counterpart but notes that this debate is more an escape from the needs of market reforms and the responsibility for negligence.
The problem is that the German economic policy has no special emphasis on export promotion. German economic strength is a consequence of the knowledge-based economy, machinery and industrial services, and these services needed in the world. Financial Crisis in Greece (but also in Spain, Portugal and Italy) showed that there were large discrepancies in the various euro area countries. If the future of Europe depend on balancing economic growth in the EU, the French charges against the Germans, could be considered understandable. But the question is whether you should look up or down?
A compromise was reached during the Ministers of Finance summit in Brussels. All agreed that the differences in development between various countries in the Eurozone should be limited, mainly by reducing "living beyond their means." The statement recommended that countries at risk should reduce the public debt, but also reform the structure of national production, to promote exports and improve production efficiency. So it seems that this time the Germans are right.
