Exporting/Importing European Nations
The following notes were excerpted from The
Fatal Flaws in the Eurozone and What They Mean for You
Germany's exports are roughly equal to that of China ($1.2 trillion)
even though Germany's population of 82 million is a mere 6% of China's
1.3 billion. (Germany and China are the world's top exporter nations,
while the U.S. trails as a distant third.) Since the inception of the
euro, Germany's exports rose an astonishing 65% from 2000 to 2008 while
its domestic demand was near zero. Without strong export growth, Germany's
economy would have been at a standstill. The Netherlands, which reaped
a $33 billion trade surplus from a population of only 16 million residents,
is another example of a Eurozone country which runs substantial trade
The "consumer" countries, on the other hand, run large current
account (trade) deficits and large government deficits. Italy, for instance,
has a $55 billion trade deficit and a budget deficit of about $110 billion.
Total public debt is a whopping 115.2% of GDP. Spain, with about half
the population of Germany, has a $69 billion annual trade deficit and
a staggering $151 billion budget deficit; fully 23% of the government's
budget is borrowed.
Though German wages are generous, the German government, industry and
labor unions kept a lid on production costs even as exports leaped.
As a result, the cost of labor per unit of outputthe wages required
to produce a widgetrose a mere 5.8% in Germany in the 2000-2009
period, while equivalent costs in Ireland, Greece, Spain, and Italy
rose by roughly 30%. The consequences of these asymmetries in productivity,
debt, and deficit spending within the Eurozone are subtle. In effect,
the euro gave mercantilist, efficient Germany a structural competitive
advantage by locking the importing nations into a currency, making German
goods cheaper than domestically produced goods. Put another way, by
holding down production costs and becoming more efficient than their
Eurozone neighbors, Germany engineered a de facto devaluation of its
own products within the Eurozone at the expense of its importing neighbors.
Since Germany depends so heavily on exports to these same neighbors
for its national income, it is not immune to a contraction in the importing
nations of the E.U. Were Germany to attempt to bail out its own floundering,
insolvent banks as well as the ECB (European Central Bank), then a sharp
contraction in the E.U. economy might well trigger an unexpected
( to most analysts) fiscal and political crisis in Germany. Germany
has backed itself onto a supremely precarious ledge by becoming so heavily
dependent on exports enabled by its insolvent customer-nations and its
own tottering banks.