Monday, 15 November 2010


A convenient myth in our national economic collapse (expressed here but also countless other times) is that somehow our rising debts fuelled consumption of German exports.

This argument has been cleverly adapted by our home-grown economists/apologists from the general discussion on Global Imbalances and is correct only insofar as it states that current account surplusses should not be seen as having moral implications (prudent exporters v. wastrel importers). In every other respect it is incorrect.

Now, sadly, figures on bilateral trade balances within the Eurozone are hard to track down - they are not available on Eurostat or ELSTAT. But we have a second-best option.

For proof, turn if you will to page 7 of this publication. It shows that Greece was Germany's 27th largest export market in 2008, down from 24th in 2000 and indeed down from an unbelievable 19th back in 1990. So it's very unlikely that German export growth relied to any extent on Greek profligacy. Note however the rise in the export markets' rank of the US and China, with which German shares neither currency nor any institutional links. If anything, China is a fellow export-driven economy. Of all the PIIGS, only Spain actually went up the ranks of German export markets during the noughties.

Perhaps more importantly, if one could rewing back to 2001, one would read article after article about how badly joining the Euro was playing out for German exports. It turned out the exchange rate at which Germany joined over-valued its products, making it very hard to shift those BMWs (except to Cypriots, bless them). Ten years on the situation is reversed. Germany and some other countries kept running while Greece and some others thought they'd take it easy once they'd passed the big exam.

So there you are, apologists. Greece is not to Germany what America is to China, although it would be convenient and flattering to think so.

Who will we blame our troubles on now? Well, we could still blame them on the Euro. Our Euro is massively overpriced while the Germans' Euro is massively underpriced (evidence here). In this sense Germany is a bit like China - and although Greece is partly a victim of this implicit subsidy, we were given nearly a decade to reverse it by improving competitiveness. Instead, we pegged our wages to those of the Germans (just like they told us not to) and stifled regulatory reform.

UPDATE: A table of Germany's 2009 exports by partner, showing turnover and trade balances, can be found here.

2nd UPDATE: A further discussion of Greece's trade links can be found here


  1. I was actually subjected to the Imports Myth myself while in Athens back in May. I never imagined though that this idiocy was so wide spread; I was under the impression that the irate woman who lectured me on German-Greek trade (punctuated by outbursts of "WHERE IS THE SOLIDARITY!") was the sole nutcase...

  2. @Andreas:

    While it is undeniable that Germany has benefited and Greece has suffered from a cheap Euro, it is not clear that there is a bilateral cross-subsidy at play.

    I tend to think that when the Germans opted into the Eurozone they accepted a bit of a handicap - i.e. an exchange rate that made the D-Mark rather expensive. They assumed that we and the rest of the South would start to catch up in terms of productivity, as indeed did we. When said productivity rise failed to materialise, the imbalance widened dramatically.

    From the point of view of some Greeks, signing up to any form of free trade with Germany was a concession on our part - we could never export anything of value to the Germans, the reasoning goes, so they are bound to be better off under the deal. Hence they need to compensate us in some way.

    Others (including some of my friends) believe that Germany's membership of the Euro always implied a guarantee of other members' debt - the point was never made explicit but it was there all the same. I believe that the design of the EMU was actually meant to make bailouts impossible and the discredited SGP was meant to ensure none would be needed anyway. Those were the terms we signed up to.

    Others still believe that the Siemens corruption case and German firms' share in Greek public procurement somehow justifies a permanent subsidy - a kind of institutionalised bribe to ensure we will turn a blind eye to any foul play.

    Finally, there are those who believe that the Germans will do anything to avoid having the N-word thrown at them and that their participation in the entire European project is an act of redemption. And as the sins of the German fathers will never be washed away, their obligation to prop up Europe - whatever 'Europe' might come to mean - has no boundaries.

  3. We're in full agreement in our beliefs with respect to the intended role of the EMU my friend. My counter-argument to the suggested "support" of the German economy by Greece's profligacy; was that it Germany wanted a weaker Euro, the preferential route for them would be an adjustment of their own public spending. Or perhaps they limit spending and retire late because they like it? The reply I got was that they sure do; and while Greeks don't, so why not just transfer cash from "rich Europe" to "poor Europe" already? Anyway, I feel for they younger generation who will not only inherit a bankrupt country; but also a (national) reputation greatly tarnished by their parents. For a year now northern Europeans have been subjected to the "reaction on the streets of Athens" via their news channels; and rightly or wrongly Greeks do come across as rather spoilt, selfish and ungrateful. I mean, compared with the reactions from the streets of Dublin as printed in UK media: teachers loosing 300 Euros a months in pay cuts but who were prepared to bear more pain if it would save the country...
    I feel for my young friends in Greece whose parent's generation have been so selfish. They do not deserve the reputation of lazy, greedy cheats.

  4. @Andreas: I agree. As much as I too rail against them, the supposed flaws in the Greek national character are largely endogenous - even the laziness and entitlement culture of the past generation.

    Like any animal we adapted to those parts of our environment that appeared to be the most constant. However, these perceptions were also shaped by a public discourse that, it appears to me, never really advocated responsibility from 1981 onwards.

    The Greek psyche (whatever it was like to begin with) has been twisted and warped for decades around the structures of the Greek state and the oratory of political entrepreneurs.

    As the Greek saying goes: "The vine was crooked to begin with, and then the donkey chomped at it as well."

  5. Yet according to the Time article

    "Some 80% of Germany's trade surplus is with the rest of the European Union"

    If it was not for the lust of EUropean middle and upper classes for the image of quality made in Germany exerts, would Germany be a global exporting power, Manos?


  6. @Nick:

    First of all, dividing net deficit statistics with other net deficit statistics is very bad mathematics.

    Let's say there are 4 countries in the world. Germany, Europe ex-Germany, America and the Developing World. Suppose Germany has a 5bn trade surplus with Europe, a 15bn surplus with America and a 10bn trade deficit with the Developing World. Germany's total trade surplus is 10bn, which would prompt Time to exclaim that 50% of Germany's deficit is with Europe. This is true only in the sense that 5 is 50% of 10, but utterly pointless as a measure of the trading partner's importance or vulnerability. The point is how much of its volume of trade is with Europe, and even here you'd probably have to *add* imports to exports rather than net them off.

    The Times have got their math wrong but they are only journos.

    Moving on to the spirit of the question though. China is an exporting powerhouse despite many decades of being stigmatised by Europeans as a producer of low-quality goods. Our 'lust' for Chinese exports has nothing to do with China's success. Like Germany, China benefits from competitive labour costs (a conscious policy choice in Germany) and the implicit subsidy of a foreign currency peg, which I wish did not exist but was nonetheless a conscious choice of pretty much everyone in the Eurozone.

    In all honesty, Germany didn't start off with a subsidy. They originally joined at a Euro to D-mark exchange rate that penalised them in terms of competitiveness. On top of that, the SGP (and countries' self-interest of course) was meant to ensure that peripheral Eurozone members would not fall behind in the competitiveness stakes but we ignored it and pegged our wages to the EU average regardless of productivity growth. In so doing we started building the enormous subsidy that Germany now enjoys.

    One point I make in this article is that there is nothing necessarily morally superior about being an export-driven country; I have little time for export fetishism. But frankly an analysis in which Germany 'owes' its status to our preferences for well-made machinery has got supply and demand all wrong. Other countries know of the Europeans' love of quality - take the Americans for example - they just can't cater for it as well as the Germans.

  7. Dear Manos

    1) Time (the magazine) may be journos but they are high quality journos.
    2) Whereas I could agree partly with your example of comparing trade surplus as a % of total, I would also argue that the comparison made in your original article with raking spots can also lead one off the mark. What we should be able to look at and analyse and compare are actual volumes of exports and imports, annual series, between:
    Germany and rest of the Eurozone
    Germany and PIIGS
    Germany and the rest of the EU
    Germany and the rest of the world (excluding the rest of the EU)

    3) In the absence of such data your as well as my points fall rather in the category of "theories".

    4) But as I have posted elsewhere in our same discussion of the topic of Germany's exports (not the GER-GRE myth as you deal with in this post per se) my theory is that Germany has benefited from the Eurozone in the 00s and that the German taxpayer should be aware of that. Because policy argumentation (and we both deal with policy) these days in the UK, Germany, US etc like to use (fashion?) the logic "cost to the (national) taxpayer.

    5) IMO the expensive Euro policy (or effect of Euro interest rates that we dictated mostly by Bundesbank's perennial fixation with uber low inflation, mind you even in the last 2 yrs, the Euro central interest rate, 1%, is higher than the UK (0.5%) and the US (0-0.25%) ones) did cause much harm to a crucial volume or % of Eurozone based firms (with exceptions of course eg the German firms that have a 50+ yr tradition of doing business and exporting based on a hard currency, lots of Dutch ones, etc) while it benefited Chinese, US, British products and firms, in the Eurozone, in the EU and the world markets.

    My point is that the Euro, since its launch, should have taken more into account the situations in all the Eurozone members and less driven by the Bundesbank fixation re inflation.

    That does not "excuse" policy or competitiveness mistakes or omissions made in other Eurozone members, but it helps paint a fairer picture re eg the PIIGS than the one painted by many in the last few months and a fairer breakdown of the allocation of costs and benefits of the Euro and causes of the crisis.


  8. PS.

    Re: "But frankly an analysis in which Germany 'owes' its status to our preferences for well-made machinery has got supply and demand all wrong. Other countries know of the Europeans' love of quality - take the Americans for example - they just can't cater for it as well as the Germans."

    As far as my comments and points are concerned. I did not make the argumentation you cite.

    All I am trying to show that things are no as monolythic as many commentators (political, journos, economic, etc) in Germany and elsewhere have tried to convince the world re Eurozone balances and bens/costs have painted things in the last year or so.

    This has bearing in the policy developments re the German-French competitiveness pact and the political progaganda used to sell it to the German people as well as the trade-offs demanded by Germany by those who wish to join the proposed competitiveness pact, which IMO is rather narrow, static and dogmatic, IMO as a policy analyst and an MBA (not an economist).

  9. Very fair diagnosis of the interest rate policy problem. However, that's what those boring old economist fellows meant when they said back in the day that the Eurozone was not an optimum currency area. Our business cycles are not aligned and we produce wildly different goods and services.

    What exactly should the German taxpayer do with the knowledge that he/she enjoys a implicit subsidy via the Euro? It's an imbalance and it's dangerous. We should either end it or shut up, not try to trade it off against other things. If we somehow shame the Germans into a counterbalancing fiscal subsidy we will only make the original imbalance worse (just like the Chinese buying US bonds).

  10. in1) Danke/Thanks!
    2) Those Economists (German mostly if I recall in the early 90s, I was in Brussels then) had a German model of the EZ in mind and managed to lobby, it seems the ECB, sop that its policies addressed German needs and inflation dogma.
    What was and is needed to minimise the problem of asymmetric shocks and imbalances IMO is a USA or Fed Rep of Germany union in the EU.

    3) But at what and whose terms? If the German voters/taxpayers are told ny Merkel/CDU that her partners that it is all the PIIGS fault, of course Germany will demand it own terms for EZ. That would not be fair nor feasible. And the future of the EU in an incresingly uncertain world is at stake. I make these points again and again in my tweets (@nppolicyanalyst) and my http://npthinking.blogspot.com blog. We (27 or at least 26) need a fully united EU. But I cannot reproduce all my points and systemic theories here in a few words (and on a Friday late night, lol).

    Who should pay for the US of E federal budget? The wealthy taxpayers in all of the participating members, including but not only the Germans! Much like the US (most of the wealthy there live in 2 states, CA and NY, but that is another analysis/post/discussion, lol)

  11. Aren't you supposed to look at Germany's place as Greece's trading partner? And to observe that Germany is indeed Greece's top import and export partner? Your argument just shows that the Greek insolvency should have been treated as a pimple in the EU's collective arse, rather than turned into an existential crisis.

  12. Greece has to increase and strengthen the exports we currently have on a worldwide scale.


Please remember that I am not notified of any comments and will not respond via comments.

Try to keep your criticism constructive and if you don't like something, do tell me how to fix it. If I use any of your suggestions, you will be duly credited.

Although I'm happy to entertain criticism of myself in the comments section, I will not tolerate hate speech. You will be given a written warning and after that I will delete further offending comments.

I will also delete any comments that are clearly randomly generated by third parties for their own promotion.

Occasionally, your comments may land in the spam box, which may cause them to appear with a slight delay as I have to approve them myself.

Thanks in advance for your kind words... and your trolling, if you are so inclined.