Sunday, 3 March 2013

Why the German Economy Will Never Fail

Germany as a country has always been characterized by the outstanding work ethic of its people who are not only among the most skilled but also the most quality conscious professionals in the whole world. Its rather fashionable today and popular to predict the Euro's death and Germany's fall. It's a simple answer to a very hard question about how to integrate peoples and cultures that have been beating each other senseless for centuries. However it's even easier to predict the euro's survival backed by the German economy though much less popular.

If you spend any amount of time thinking about the ramifications of the euro going away you know that there's one reason the currency's survival is preordained: Germany.

The German economic miracle over the last decade is the direct result of the euro. The euro did away with the cost of currency conversions when importing and exporting products around the E.U. It also equalized pricing from one country to the next, and added huge efficiencies to the manufacturing and sales processes.

In essence, the euro allowed the German exports to excel.
Indeed, German exports in the early-90s rose by about 3% a year. Between 1999 and 2003, when the euro existed largely as an accounting currency only, German export growth rose by more than 6% annually. And between 2003 and 2007, when physical euro coins and notes were in circulation, German exports grew by 9% a year.

For 2011, Germany expects exports will top €1 trillion for the first time, representing more than one-third of GDP... and about 40% of that goes to other Euro-zone countries.

Anyone who thinks German business and industry - which relies heavily on selling goods to the rest of the E.U. - will allow such an important trading advantage to slip away is delusional. It's never going to happen. The single-currency's existence has added hundreds of billions of Euros to the German economy in the last few years alone.

Survival is the only option. Because consider the fate otherwise... Europe returns to individual currencies and instantly BMWs and Mercedes Benz's become too expensive across much of the rest of Europe. German exports would immediately slow and the German economy would crash. Massive layoffs would ensue and Germany's political and financial might would shrivel.

The re-emergence of Germany's former currency, the Deutsche Mark, would attract capital from all over Europe as Greeks, Italians, Irish, Spaniards, French and others dive out of their weak currencies and into a stronger currency. That would risk inflation in Germany - exactly the fear today of Germans who, as a culture, cling to images of Weimar hyperinflation.

So Germany would end up in a situation where the economy is crashing even as inflation rises.
German business and industry absolutely does not want that and it will ensure that it doesn't get it.

Vivek Sharma

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