Why does Germany depend for its demand on other people’s readiness to run up debts?

Discussion in 'Wall St. News' started by ASusilovic, Mar 18, 2010.

  1. What is it, Trade Imbalance Tuesday? Half a world away from the RMB revaluation wars, analysts have jumped on a recent French attack on German exports as the debate over eurozone recovery grows.

    We’re pleased to note that this particular spat kicked off in the FT’s august pages on Monday, after Christine Lagarde urged Germany to help raise competitiveness in the eurozone by opening up its domestic demand. This earned a stiff Prussian riposte by Tuesday.

    Now Lombard Street Research’s Charles Dumas has weighed in on Germany’s place in the eurozone — and he doesn’t hold back:

    The comic aspect of the attempts by Germany to make the rest of Europe converge on German practice is that the German economic performance has been dismal. What is now being enforced is that nobody else in the Eurozone – or its irrational aspirant members – is to be allowed any growth either. Europe is being forced into a German lowest common denominator…


    The question Mme. Lagarde is rightly asking is: how much longer do we have to put up with being lectured by this bunch of policy failures? The chart above [click to enlarge] shows real GDP growth from the end of the last recession…
    Germany is placed evenly between the Sick Man of Europe, Italy (with no growth at all – the very fact of EMU membership has been enough to crush Italy), and the Sick man of the World, Japan (which at least managed nearly 1% annual growth). Germany’s pathetic advance over eight years was 3½%, less than ½% a year, and one third of the growth of Britain and France…

    Germany’s – and the eurozone’s – problem, Dumas adds, is that even this mere dawdle of a growth rate was half comprised of preying on other economies’ export demands (emphasis ours):

    Why does Germany depend for its demand on other people’s readiness to run up debts? Because its own spending is crushed by budget-balancing. GDP growth over the recent cycle may have been pathetic, but consumer spending growth is worse: non-existent. Now, not least because of EMU-driven measures, other people will not be running up debt. Germany will do even worse than before. And yet we are all expected to take their policy views seriously!

    Is that fair? Well, for one thing, FT Alphaville wonders whether Lagarde hasn’t also made the heroic assumption that deficit countries would easily glide into becoming competitive economies, once Germany helpfully stepped out of the ring for them.

    Not only that, but Stephen Lewis of Monument Securities suggests Lagarde’s petit problème allemand may lie rather closer to home (emphasis ours):

    The most disturbing question is why Mme Lagarde chose to proffer her advice to Germany at this stage. She may have been acting altruistically, with the interests of the Club Med countries close to her heart.

    The fear is, though, that the French economy, which until now has seemed to keep up with the pace Germany has set, is running out of breath. Germany has relatively little fiscal retrenchment to undertake in order to comply with the 3% deficit/GDP limit.

    If France is to match Germany’s progress to the target, it will need to make much deeper budgetary cuts. These would risk plunging the French economy back into recession. The euro experiment is reaching the crucial moment when divergence between French and German economic performance can no longer be disguised. This could be the breakdown point.


    Germany likes to profit from other countries' debts.
  2. hard to raise your consumer spending nominally when you have to imort millions of people just to keep your population numbers constant.
  3. Especially since Germany is known for its "friendly" foreigner policy...
  4. the real question is:

    "is fake growth better than no growth"

    or, put differently:

    "is growth resulting from capital misallocation that itself is the result from easy access to credit a policy that a nation should pursue?"

    I would love to know what % of GDP growth in countries like France or the USA is the result of an expansion of the public sector for instance or the pursuit of endeavours such as war funded through public debt?

    Another example is Spain whose growth in GDP was the result of outrageous real estate speculation.

    Let's not mention the UK that contends with Spain for the prize of greatest GDP growth and resulting fake prosperity.

    I respect the Germans for not accepting to play the game of fake GDP growth and their unwillingness to pay for others that did.
  5. Debt can be used to "enslave" other people/countries. :(