Do Germany’s export policies harm its neighbours?

In recent months the German export model has attracted criticism. German surpluses are responsible for the deficits of its neighbouring countries and damage its trading partners is the critique. Is this reproach justified? For Gabriel Felbermayr, University of Hohenheim, these contentions lack a sound basis. This does not mean that the imbalances do not give cause for concern, but the basic problem lies with the financial market institutions and not with the goods or labour markets, and this is also not a problem “made in Germany”. A “true” German export policy in the sense of the classical instruments of export promotion does not exist; the reproach instead is that Germany because of its labour market policies indirectly pursues an export policy and with its cautious approach to wage increases has unfairly improved its competitiveness at the expense of its neighbours. However, on a long-term basis labour market reforms in one country lead to lower unemployment among its trading partners. However, according to Felbermayr, false incentives from the de-facto liability obligations in the currency union have the effect in Germany of an export promotion policy, but this benefits its neighbours and harms the Germans. According to Eckhard Janeba, University of Mannheim, Germany cannot be criticised at a macroeconomic level since its moderate budget policies are in accord with the long-term constitutional requirements. On the microeconomic level, however, Germany, as well as other countries, has taken policy decisions that have led to trade distortions. To change this is a task for German politicians. Holger Görg, Kiel University, looks at the problem at the company level. A relatively small number of companies is responsible for the majority of German exports. These are highly productive enterprises that can stand up to foreign competition. The same holds for importers: there are relatively few of them, and they are highly productive. Through imports new technology comes into the importing country, which can then be used by the domestic companies. If for example France’s exports are not what the government desires, this is attributable to a certain extent to the involved companies. These companies could indeed profit from imports by attaining access to technology. Ansgar Belke, University of Duisburg-Essen, stresses that the export successes of Germany stem from its competitive advantages that have be acquired over the years from innovations, technical progress and moderate wage policies. Germany is a leader in international markets primarily in capital goods. These products are not produced in comparable quality by Spain, Portugal or Greece, and for this reason they have also not lost any market shares. In addition Germany with its export model has assumed the role of a European economic locomotive since its high export share also induces a regularly high share of imports of intermediate products. Germany’s exports thus currently help its neighbours more than they harm them. Nevertheless, Germany by increasing its purchasing power should assume the responsibility for reducing the current account imbalances in the eurozone – at best via a stronger flexibilisation of its service sector and by lowering its non-wage labour costs. Also Michael Pflüger and Stefan Ebner, University of Passau, see the tensions in the eurozone as home-made. It is true, however, that the well-founded reserve in wage bargaining that has been practiced in Germany in recent years resulted in contractive impulses and adaptation burdens for its neighbours. Faced with the current situation of the world economy, the American administration rightly insists that Germany provide stronger impulses for world economic activity.