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France attacks hefty German trade surplus

AFP/The Local · 15 Mar 2010, 17:37

Published: 15 Mar 2010 14:17 GMT+01:00
Updated: 15 Mar 2010 17:37 GMT+01:00

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French Finance Minister Christine Lagarde called hefty Germany's trade surpluses unsustainable for its neighbours.

"(Could) those with surpluses do a little something? It takes two to tango," she told the Financial Times newspaper. "Clearly Germany has done an awfully good job in the last 10 years or so, improving competitiveness, putting very high pressure on its labour costs."

Though Germany recently lost its crown as the world's leading export nation to China, Europe's largest economy still has a positive trade balance with most of its immediate neighbours. And eurozone members can no longer devalue their currencies to compensate for Germany's surplus as they frequently did before the introduction of the euro.

"I'm not sure it is a sustainable model for the long term and for the whole of the group," she said. "Clearly we need better convergence."

But Chancellor Angela Merkel's spokesman on Monday refuted Germany was the problem.

"We are not a country that sets salaries or consumption by decree," he said. "It is better to think about a growth strategy together rather than obliging some to hold back artificially."

He underscored the role of Germany's Mittlestand sector, a vast network

of small- and medium-sized enterprizes, often family owned, that are highly specialised, export oriented and "very innovative and very quick to react."

"The question is how can others achieve that," the spokesman said.

Without a federal minimum wage, the German government cannot directly increase disposable income and in the 1990s the country's trade unions accepted relatively low pay to preserve jobs as aeging German industries restructured operations to keep abreast of others around the world.

Less money to spend, along with high taxes levied to help develop formerly communist eastern Germany and a German tendency towards saving, resulted in an economy that imports much less than it exports.

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"It is the relative weakness in imports (and consumption) that has led to the sharp widening of the current account surplus," Goldman Sachs economist Dirk Schumacher noted, a trend that is not likely to change soon.

A pay deal negotiated by the IG Metall trade union last month for 3.5 million metallurgy workers favoured job security over pay.

Some economists urge the government to cut taxes to encourage consumption, but the government has to deal with a swollen public deficit resulting from stimulus programmes aimed at dragging Germany out of its worst post-war recession.

AFP/The Local (news@thelocal.de)

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Your comments about this article

16:33 March 15, 2010 by Der Grenadier aus Aachen
I know this is a bit of a revolutionary idea, but, maybe the rest of the Eurozone could try to be just as hard working and industrious to give us a little competition. How about that?
17:31 March 15, 2010 by saucymugwump
France is missing the point. The Eurozone should be asking Germany for pointers on how to improve exports for the entire EU. If the EU does not wise-up soon, it will have no exports and will be just like the USA with mainly Chinese imports. War has been declared and so far the Chinese are winning.
18:26 March 15, 2010 by Henckel
Once again, Adler (Germany) defeat the Froesch (France)! (Before he adopted the fleur-de-lys as his emblem in A.D. 496, the Frankish King Chlodwig (in Latin and French called Clovis) had used frogs as his crest.)
19:10 March 15, 2010 by Bushdiver
Don't tell me Goldman Sachs has their fingers in the German economy as well.
20:23 March 15, 2010 by Essertpitay
I am French and I work for one of those famous Mittlestand companies. We are the world leaders in our highly regulated sector and all this from the backwaters of Bavaria. I am astounded by the attitude of Christine LAGARDE. These are the kind of comments which makes us (the French) look like a bunch of clowns !
20:24 March 15, 2010 by dbert4
" Goldman Sachs economist Dirk Schumacher noted, a trend that is not likely to change soon"

Goldman Sach can blow me! What a group of asswholes. They are wanting the German consumer to buy things that can't afford, on credit of course. Once Germans and the rest of Europe are as indebted as Americans. Then Goldman Sach will make billions trading some type of "credit default" swaps and betting they will go broke.

That group should be disbanded, their management jailed.
20:49 March 15, 2010 by wxman
Thanks, Henckel. I always wondered where that moniker for the French came from.
21:05 March 15, 2010 by Fruitkok
Why don't the French just listen to the Germans? It's probably their everlasting arrogance. While accusing Germany of playing unfair economic games they should check their own behaviour. You know they bought our (Dutch) complete AEX-index: Fortis, KLM, Rodamco, Numico, the index itself (Euronext). Name me one French company that lost its ownership to foreigners. They'd better stop striking and start working.
22:25 March 15, 2010 by ColoSlim
You Germans are making the rest of the EU look bad. take a month off.

If France is net importer from de and workers and companies can go either place is it really leakage (trade deficit)? Time think like in a unified way. EU all the way or go home.
01:00 March 16, 2010 by peschvogel
Seems like the EU is getting angry at Germany for running trade surpluses for years at very low interest rates. Time to change has come. The chicken is coming home to roost...Schade...
10:16 March 16, 2010 by freechoice
Ze french designs the most beautiful things and the Germans have the best quality, why not marry each other and produce the perfection to the world? Instead of bickering here and there and nothing really happens after that?

And what do the Spaniards do? Even the Italian can boost their economy with their Maserati and Ferraris...Has the Greeks finally woken up from their siestas?

Is there hope for Eurozone?
13:19 March 16, 2010 by Gaffers
So the French don't like that the Germans have managed their economy better? Boo f***** hoo ! I agree that instead of throwing their toys out of the pram they should put their own house in order. The French strike at the drop of a hat. Maybe a little more industrious behavior would help them.

The comments about the EU needing to be all in or not at all is rubbish. Why should the hard working carry the lazy? The EU can promote prosperity through coooperation but that doesn't mean it is a given. It has to be earned.

I don't complain about my neighbour earning more if he has studied harder or works longer for it. good for him !

This ideaology of getting something for nothing is becoming far too prevelant in society.
15:59 March 16, 2010 by dbert4
"The German government *could* do more to stimulate domestic demand which has been suppressed by heavy taxation over the last couple of decades but that's about it really,"

What bullsheit! The German worker is being squeezed by what is essentially a wage freeze. They don't have the disposable income to increase domestic demand. You want them to act like Brits and Americans and buy on credit? Who does that benefit, not the workers. And this myth of "tax cuts" stimulating the economy is more BS, it leads to massive government deficits. The government is providing "domestic stimulus" by paying social benefits to the unemployed.

The problem here is the Chinese! The German manufactures have chosen to compete with them, but the only way to do that successfully is to freeze wages. At least they¦#39;re trying to compete unlike the American and Brits who have thrown in the towel and joined the "outsourcing" party.
16:57 March 16, 2010 by Gaffers
Mmmm companies not increasing wages during a recession. What a radical idea ! I disagree completely. why should companies pay more during a period of uncertainty? That makes no economical sense.

As for the disposable income question I do not think that there is not enough to go around. The mentality of the average German I have met (and I'm married to one) is to save for something they want or to just save period. In the UK loans and credit are far more common as people go after the things they want. Maybe it's a quality of life question. In the UK there is far less "activity" form the average Joe. More staying at home with consumer goods. In Germany there's far more outdoor activities that are undertaken so the consumer goods are less important.
19:20 March 16, 2010 by wenddiver
Agree to talk with the French about the trade imbalance, if they bring the wine and cheese. Do nothing, but consume the wine and cheese.

Repeat as necessary. ; )
00:11 March 17, 2010 by peschvogel
The implications of this are difficult to overstate. If the euro is essentially gutting the European - and again to a greater extent the Club Med - economic base, then Germany is achieving by stealth what it failed to achieve in the past thousand years of intra-European struggles. In essence, European states are borrowing money (mostly from Germany) in order to purchase imported goods (mostly from Germany) because their own workers cannot compete on price (mostly because of Germany). This is not limited to states actually within the eurozone, but also includes any state affiliated with the zone; the relative labor costs for most of the Central European states that have not even joined the euro yet have risen by even more during this same period.

It is not so much that the opposers now sees the euro as defunct, it¦#39;s more that an assessment of the euro is shifting from the belief that it was a straightjacket for Germany to the belief that it is Germany¦#39;s springboard. In the first assessment, the euro would have broken as Germany was denied the right to chart its own destiny. Now, it might well break because Germany is becoming a bit too successful at charting its own destiny. And as it dawns on one European country after another that there was more to the euro than cheap credit, the ties that bind are almost certainly going to weaken.

The paradigm that created the European Union - that Germany would be harnessed and contained - is shifting. Germany now has not only found its voice, it is beginning to express, and hold to, its own national interest. A political consensus has emerged in Germany against bailing out Greece. Moreover, a political consensus has emerged in Germany that the rules of the eurozone are Germany¦#39;s to refashion. As the European Union¦#39;s anchor member, Germany has a very good point. But this was not the ¦quot;union¦quot; the rest of Europe signed up for - it is the Mitteleuropa that the rest of Europe will remember well.

This is what I mean when i stated that Berlin is actively pursuing currency reform to return to the Deustsche Mark...Its in their own interests to do so...
09:24 March 17, 2010 by dbert4
"European states are borrowing money (mostly from Germany) in order to purchase imported goods (mostly from Germany) because their own workers cannot compete on price (mostly because of Germany). "

Concerning the EU, this is Bullsheit! But if true, how is this different than the US China relationship?

The Chinese have linked to the dollar, the result for trade purposes is the same as if there is a common currency.

To quote back to you some of the the Shiet that you are spreading continually. "The US is screwed, you "pechvogel" need to prepare for the coming collapse of the USA. You have no idea what is coming!"

All major German companies have manufacturing in other EU countries, particularly in Eastern Europe. They are actively raising the standard of living for the rest of the EU, who then buy more products with the increased wages that they are earning. Unfortunately this has been at the expense of German workers. Since the EU is in global terms a small club, they will eventually be an equalization of wages.

On the other hand, the time required to raise 1.5 billion Chinese to a western level of income required for equalization of wages is not in 2 lifetimes. The US worker is screwed! The US continue to morgage itself to Chinese.

At whatever point that China is no longer a wage bargain, those same fine American companies that are using China is an off-shore production paradise will simply shift production to Africa as they did once Mexico's dirt poor wages became too expensive.
16:19 March 17, 2010 by Der Grenadier aus Aachen
I think there is a far greater jealousy at work here. Thatcher probably felt it first, in her virulent opposition to German reunification, based on fears of Germany's industry & influence eventually displacing Britain. We'll leave Britain out of it for a second, since they are really only grudgingly EU members anyway, not part of the currency union, and usually pretty strongly removed from mainland interests anyway. The simple truth is that Germany is, economically, the most powerful nation on the continent - and a lot of people can't swallow that. But that aside, as a matter of consequence of simple facts, Germany should have a stronger voice in the Eurozone. And really, no one in Europe is in a position to tell it how to manage her stance on export-friendliness.
17:54 March 17, 2010 by peschvogel
Right, jealous of deflation depression, poor demographics, currency problems, higher taxes (thanks to Greece, Spain, Portugal), upside down tree demogrpahics, poor immigration integration, low interest rates until 2012, pensioners loosing money, loosing competition, bankrupt banks, no leadership from Berlin, no Treasury mechanism, MittelsEuropa dream gone, poor health care, education, brain drain, ect....

Jealous or pity? You decide. Schade...
06:58 March 18, 2010 by Der Grenadier aus Aachen
I'm actually having some trouble responding to that statement, since you're not using a lot of facts, but are using a lot of poorly defended generalizations that are popular lately.

Now, if we can all return to reality for a minute:

Germany is the largest economy in Europe. The end.
21:36 March 18, 2010 by Logic Guy
Well, in find what was said by Freechoice as being quite interesting. It's true, the French are very good when it comes to looks and style. And the Germans are usually the best when it comes to technical innovation. And yes, the combination of the Frence's flair for the dramatic and Germany's engineering lead to the creation of Airbus.

The German manufacturing division of Airbus has been known to be the most efficent. And the problems regarding the A380 mostly stem from a lack of "techical harmony" between the French and Germans.

If business partners aren't willing to commit to the exact same standards and goals, then obviously there will be problems.

As an artist, I'm grateful for what the French have given to the world. However, they and other EU nations really should look at Germany's efficiency model.

The wars ended many years ago. Germany will always be a leading force. The world has no reason to fear it. And yes, if there were stronger leadership from Berlin, then the EU would be much more efficient and therefore more successful.
18:12 March 19, 2010 by William Thirteen
hey peschvogel, i see you've been reading Stratfor again....
03:35 March 21, 2010 by peschvogel
Yes, Strafor gives great insight to why the collapse of the social welfare states and the Euro are happening with such great speed. April should be the deciding direction for Germany....
15:00 March 21, 2010 by William Thirteen
here is a link to the Stratfor article 'cited' by peschvogel above

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