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Germany slaps down France over trade claims

AFP · 16 Mar 2010, 08:17

Published: 16 Mar 2010 08:17 GMT+01:00

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German Economy Minister Rainer Brüderle defended his country's export-driven economic model after his French counterpart, Christine Lagarde, said Germany's approach could hurt other European economies.

"For countries which in the past lived off their entitlements and neglected their competitiveness, to point their finger at others is humanly and politically understandable, but still unfair," Brüderle told the daily Frankfurter Allgemeine Zeitung in an interview published Tuesday.

"The structural reforms needed to regain competitiveness are very painful," he added in a clear swipe at France.

Lagarde told the Financial Times that she was "not sure" the German approach – "improving competitiveness, putting very high (downward) pressure on its labour costs" – was "a sustainable model for the long term and for the whole of the group."

"Clearly we need better convergence" within the 16-nation eurozone, she said.

German Chancellor Angela Merkel's spokesman said it was "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 network of small- and medium-sized enterprises, 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.

Salary moderation has helped products made in Germany gain market share in many countries, while Germans save more and spend less, reducing imports.

The result is that while Germany was overtaken by China last year as the world's leading exporter, Berlin still benefits from a considerable trade surplus that irks some neighbours.

"If the eurozone really wants to become a functioning economy, these issues will have to be discussed and they will have to be solved at the eurozone level," ING senior economist Carsten Brzeski said.

The European Union's competition commissioner, Joaquin Almunia, said in Madrid it was important to pay attention to trade imbalances "and also to countries that have surpluses."

The daily Bild reported that lawmakers representing Germany before the European Union are worried by charges the country "achieves its growth at the expense of others."

The Economist magazine last week ran an article under the headline: "Why Germany needs to change, both for its sake and for others."

Berlin's answer? "We are not a country that sets salaries or consumption by decree."

Story continues below…

In the 1990s, German unions accepted relatively low pay to preserve jobs as ageing German industries restructured operations to keep abreast of rivals around the world.

Less disposable income, along with higher taxes levied to help develop former communist eastern Germany and a German tendency towards savings resulted in an economy, Europe's biggest, that imported much less than it exported.

The trend that is not likely to change soon, since a pay deal negotiated by the IG Metall trade union last month for 3.5 million metallurgy workers again favoured job security over pay.

"The solution requires stronger German consumption, but that is only part of the solution: other countries have an equally strong responsibility to accelerate structural reforms and boost productivity," UniCredit chief economist Marco Annunziata.

Some economists say Berlin should cut taxes to boost consumption, but the coalition government is struggling with a growing public deficit as a result of stimulus programmes aimed at dragging Germany out of recession.

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Your comments about this article

09:32 March 16, 2010 by Clapoti
Well I think France could probably try to do better... but I also think that Germany should change it's way of doing business... keeping salaries low... people are hardly getting raises, I think this should definitely change.
10:27 March 16, 2010 by freechoice
i think the Germans should spend more to help the economy...

consumption has an multiplier effect on the economy and help to bring dynamism...

but if all money only goes to Lidl/Aldi do the buck really stop there?

And we have this most richest man in Germany....
12:06 March 16, 2010 by Edmond Schindler
Speaking for myself, France is right!

My boss had us all "volunteer" for 12 days a Quarter reduced work Schedule for the rest of 2010 which reduced my income 25% a month and yet behind closed doors was told to show up every day of the week and that taking the 12 days off was "frowned" upon. I was told that the same hours are expected each day and not to reduce my time, commitment or effort.

So, we were reduced to 75% income, told to work full time - this IS squeezing salaries, this does not provide "savings" moneys, it eliminates them and cuts my buying power to absolute necessities. People like me, and there are 1500 at my company who "volunteered", we can't buy, we can't save, we can't quit - all other employers in Germany use the same Mobbing tactics, there is no better alternative. We're told to take or leave it, it's an Employers market, like it or not.

I now earn a full 31k@ less Gross wages than I did 3 years ago, same trade, same job title, same job description, down from 67k€ to 36k€ annually after "volunteering".

I don't think I am an exception...the politicians aren't going to admit that's the way it is here, but France is right.
12:54 March 16, 2010 by alanericsson
Regarding Edmond Schindler's post :

12 days a quarter should have reduced your income by 20%. Your salary reduction from 67k by 36 means a reduction of approx 45%. You need a new accountant!

Regarding the substance of the article:

As a UK citizen, old enough to remember the reasons behind de Gaulle's veto of UK membership until France had all of its demands met, the phrase "Common Acricultural Policy" springs to mind.
13:05 March 16, 2010 by townboy28
A sign that Germany is above all, and they are all now blaming Germany why they are all failures....

A brother who is a streetworker like to blame the doctor brother why he has only a low class prof.

The simple answer Germans are clever/intelligent the failures are brainless.
19:53 March 16, 2010 by wxman
@Clapoti: " Well I think France could probably try to do better... but I also think that Germany should change it's way of doing business... keeping salaries low... people are hardly getting raises, I think this should definitely change."

If the Germans change their way of doing business and raise salaries, then they will have increased their cost of doing business. This would necessitate an increase in prices for their products. The whole point is to keep costs down so that you remain competitive. Consequently, I'm sure the French would be overjoyed to see the Germans paying their workers more.
22:18 March 16, 2010 by Fatz Lewinski
Speaking as brit expat, I agree whole heartedly with alanericsson. France is run on protectionist politics, heavily reliant on nationalised industry and agricultural subsidy.

Germany is one of the few industrialised nations that can sustain itself in agriculture, industry and business. It has been achieved by fairly boring but stable economic guidance. The changes of the last few years (and I guess this would have been Schroeder's policies) are returning results.

There will always be stories of hardship and I sympathise but I think there is a "for the greater good" example here. The real worry is that, should this current trend fail, what will happen to compensate Merkel's spending spree of the last couple of years? Germany will quickly descend into a lighter version of Greece, Ireland, Portugal, etc.
08:10 March 17, 2010 by wood artist
Free market economies are never stable. They respond (or don't) to all sorts of things, and governments have limited abilities to actually control them. Things like stimulus programs can have an effect, but they come at a price, usually deficit spending or higher taxes.

In the US some people have finally discovered that their constant union demands for higher wages and greater benefits have successfully priced themselves out of the world markets, and the US auto industry is a great example. Yes, you want higher wages and all that other good stuff, but first and foremost, would you like to have a job? Whoops, looks like you missed that idea.

From my observations, Germany has been relatively successful at making the system work, even with the stress of trying to merge the former East and West into a single economic structure. That was (and still is) a challenge that not many countries could pull off. I suspect the French should spend a bit less time complaining, and a bit more time trying to learn from what Germany has been able to accomplish.

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