A GERMAN FINANCIAL IDYLL

The staggering German economy is becoming the envy of the world and, at the same time, giving rise to a bout of criticism from other nations who believe that the German gigantic trading surplus is harming world economies. Deficit-ridden America has attacked such figures as indeed very bad, but Berlin says the US must look at itself and manage their own affairs more rigidly.

In Germany, the national concept is rather different. When 128,000 Deutsch Bahn staff were asked whether they would rather have a pay rise this year or extra days off, more than half of them left the money on the table. ‘I chose the extra holiday because it gives me the opportunity to spend more time with my two children and the family,’ Tobias Turkoglu, a train driver, told Die Welt. ‘Since I do shift work, I really appreciate the extra 6 days of leave a year.’

Even those railway workers who did want the pay rise were in no mood to use their newly bulging wallets to splash out on the good things in life. Their priority was retirement and the chance to boost their personal savings. All of them had one thing in common. They were symptomatic of Germany’s supposed domestic economic problem, of a work force happy to settle for modest annual pay rises in return for better working conditions and an improved work/life balance: and because they are not buying enough, while busily making stuff that the rest of the world really wants to buy. Hence, they are helping to build what is the largest national current account surplus on the planet!

International anger at such Teutonic parsimony is growing. While the German economy is one third the size of China, its trading surplus was larger than the People’s Republic, at almost $300 billion last year – a whopping 8.3% of GDP. In contrast, the United States had a global trading deficit of more than $500 billion, something viewed by President Trump to prove that America is losing the global economic game.

Worse still, the US deficit in goods trade with Germany was $65 billion in 2016 and as far as Mr Trump is concerned the German surplus is ‘very bad’. Peter Navarro, a Trump advisor, has said that Germany continues to exploit other countries in the EU, as well as the US, with an implicit Deutschmark that is grossly undervalued. It was left to Angela Merkel to point out that the European Central Bank sets monetary policy for the entire Eurozone and that Germany’s own Bundesbank has called repeatedly for a tighter policy to strengthen the currency.

German economists add that it is futile to blame the Euro. ‘Trump’s administration has attacked Germany for exporting too much and accused it of manipulating the Euro. In fact, Germany’s trade surplus has little to do with the Euro, which has become a convenient scapegoat,’ said Marcel Fratzscher, a former senior manager of the European Central Bank, head of the DIWBerlin think tank and a professor at Humboldt University, Berlin. ‘A second fallacy is the belief that politicians and central banks can set exchange rates. In most advanced economies the exchange rate cannot simply be decreed.’ If Professor Fratzscher pointed a figure, it was at protectionist policies in the non-tradeable services sector with heavily state-protected monopoly employers such as Deutsch Bahn.

Hans-Werner-Sinn, a member of the Economy Ministry’s Academic Advisory Body, said that: ‘the real culprits are an inflationary credit bubble in Southern Europe, the expansionary policy of the European Central Bank and the financial products US Banks sold to the world… Thanks to the Dollar status as the world’s main reserve currency, the US financial industry has managed in recent decades to offer international investors a potpourri of alluring products. This has driven up the Dollar’s value and chronically undermined export competitiveness… In lamenting the strong Dollar’s effect on manufacturing employment in the United States, Trump should look to Wall Street and not Germany.’

Professor Fratzcher looked to that German reluctance to spend. He said: ‘Germany has one of the lowest public investment rates in the industrial world. Its municipalities responsible for half of all public investments currently have unrealised investment projects worth Euro136 billion, or 45 per cent of GDP, while Germany’s school buildings alone need another Euro35 billion for repairs. Private investment in ageing capital stock has weakened by many companies desire to invest abroad.’

Indeed, it seems almost everyone in Germany has a view on the issue. Christoph Schmidt, 54, chairman of the German Council of Economic Experts, told Handelsblad, the business newspaper, that the German trading surplus mainly resulted from temporary forces, notably the ECB stimulus and the decline in oil prices. He added that corporate Germany was hoarding more cash because of EU demands for risk buffers after the financial crisis, while households were rebuilding their finances after the burst of the property bubble of the early 1990s. Most of these influences are bound to vanish over time, he said.

And behind it all stands the frugal German worker. Andreas Kluth, editor of Handelsblad Global said: ‘Germans will tell you they save because they want to retire at some point. Because Germany’s population is ageing, this means that for a few more years there will be huge aggregate savings. That – a voluntary and national decision by free individuals – is the primary reason for the high savings rate.’

This lesson is truly extraordinary. Self-imposed, yet it signals two things: prosperity for the nation and security for the individual. I must say, for this alone, if nothing else, the Germans have my admiration.

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