Germany has managed to suppress the value of its currency over the years to make its exports artificially cheap, which encouraged growth, creating manufacturing jobs.
It did this firstly through reunification (dragging down the value of the DM) and subsequently by joining the Euro (Southern Europe had the value of their currencies pegged higher than their 'natural' value, Germany's was pegged lower).
Germany's export boom after joining the Euro would have been short lived if they reverted back to the DM as the value of their currency would have risen in value, pushing up the cost of exports, ending the boom. Instead it continued unabated.
China also achieved the same thing largely by buying foreign debt (mostly US treasuries). As did Singapore, Taiwan, Hong Kong and Japan, all of which achieved similar results. There's no magic sauce, it's just a question of whether industry takes political precedence over banking (which likes an overvalued currency).
I don't understand why this comment is being down voted. While "currency suppression/ currency manipulation" is usually spoken about in association with fraud, this is most certainly one of the reasons that has allowed German manufacturing to remain competitive despite having higher labor costs. Excellent comment.
I think the reason this is downvoted is that the situation in Germany is relatively unchanged since before the Euro was introduced. Saying German success is mostly based on the Euro is a great narrative but completely ignores the reality that Germany's economy was already strong and getting stronger in the decades before that.
That's not saying Germany doesn't benefit from the Euro today or that it wouldn't be profoundly stupid for Germany to abandon the Eurozone but it's not an explanation, just a contributing factor.
"Saying German success is mostly based on the Euro is a great narrative but completely ignores the reality that Germany's economy was already strong and getting stronger in the decades before that."
Which part of "it wasn't just the Euro, reunification had the same effect" was I unclear about?
"Germany surpassed the United States to become the world’s leading exporter in 1992, around the time that Germany joined the European Union as a founding member."
As I said Germany was already the world's second largest exporter in 1960. Behind the US, which has 4 times the population.
Germany then became the largest exporter in 86, 87, 88, 90, 2003, 2004, 2005, 2006, 2007, 2008.
In 2016 Germany is the third largest exporter after China and the US. The account surplus (goods, services and investments) was the largest, next is China.
Thus the claim that Germany is a leading exporter because of Euro currency manipulation fails to explain why Germany was one of the leading exporters in the 60s, 70s, 80s, 90s, 2000s and 2010s. In all those years it was in the top three.
Reunification had the Ostmark valued at parity with the DM, even though it was clearly worth a lot less, so essentially it was a large money printing and subsidy.
The DM was pretty strong and was used as a reserve currency in many european countries, that regularly devalued their respective currency.
The current german export strength is based (at least, there may easily be more) on four factors:
1) The weak Euro. Personally, I hate it because the other european countries cannot compete with Germany. Historically, they would have devalued their own currency and thus gained competitiveness relative to Germany. There is no such mechanism left now, and that's terrible for Europe. However, the salary in Germany is way higher than in the South-Europe (say Spain), so these countries should still be able to compete. They can't though, and that is mostly due to productivity, which is very high in Germany.
2) The Hartz IV reforms that added flexibility for companies and deconstructed some of the welfare state under Gerhard Schröder (the welfare state would now still be seen as hardcore-socialistic by some americans)
and last but not least
3) A highly educated workforce (free university + a sophisticated apprenticeship system) + A high workplace efficiency (germans tend to be very productive at work) coupled with long recovery periods (most have 30 days off (24 days is minimum allowed) + unlimited sick days + strict rules on overtime) and a high level of automation + universal healthcare -> Workers recover quickly, have more energy when at work and are less stressed.
4) Inflation-adjusted wages have actually declined in the last ten years making german products even cheaper for other countries. That' terrible for everyone.
Most Germans would rather see a stronger Euro - there is no way to make that happen though. Currency markets are no longer adjusting properly which is a huge distortion and leads to many problems
Germany's industrial success was evident years before they went into effect.
Hartz is like trickle down economics and a lower minimum wage: the wealthy have good reason to love it and the wealthy will make up spurious reasons why you should love it too - which many people will believe.
>A highly educated workforce
China achieved a similar measure of manufacturing success with an education system that was a great deal worse while the UK has an equally good education system and did not achieve anything like Germany's manufacturing prowess.
The difference in the British and German education system probably has more to do with the industrial pressures than it does the nature of the education systems themselves. If the UK followed a similar export-driven path, they would probably have more apprenticeships and fewer people going to Uni to study English lit.
So no, I don't think it's that.
>Inflation-adjusted wages have actually declined in the last ten years making german products even cheaper for other countries. That' terrible for everyone.
Not everyone. German industrialists (like the guy who wrote this article) love lower wages.
> All the Hartz reforms did was suppress wages and make the average German poorer.
That's exactly what I'm saying. (edit: on the wages and poorer part; it's of course _NOT_ everything they did)
> Germany's industrial success was evident years before they went into effect.
> Hartz is like trickle down economics and a lower minimum wage: the wealthy have good reason to love it and the wealthy will make up spurious reasons why you should love it too - which many people will believe.
Without those reforms Germany would be part of the European crisis. It was called "the sick man of Europe" not long ago, not without a reason.
> China achieved a similar measure of manufacturing success with an education system that was a great deal worse
They did mostly mass production by hand while german factories are mostly automated and people there do a lot of higher-value work that requires much more knowledge than the chinese kind of manufacturing.
> while the UK has an equally good education system and did not achieve anything like Germany's manufacturing prowess.
The UK is and has been much more focused on finance. The brightest will join a bank there, while in Germany they will engineer new things. Germany has 2-3x the number of patents per year compared to the UK
> Not everyone. German industrialists (like the guy who wrote this article) love lower wages.
Sure, everyone is wrong. Nearly everyone would be right.
"Without those reforms Germany would be part of the European crisis. It was called "the sick man of Europe" not long ago, not without a reason."
It would have been fine. Germany was labeled the sick man of Europe in the late 90s. It wasn't Hartz that gave it an economic boost, it was joining the Eurozone.
Plenty of other countries have had similar reforms and not experienced any beneficial stimulus (although that doesn't stop European elites trying to ram a pseudo-Hartz down everybody's throats).
"They did mostly mass production by hand while german factories are mostly automated and people there do a lot of higher-value work that requires much more knowledge than the chinese kind of manufacturing."
This is simply an artefact of the Chinese being poorer while they first enacted this policy. They moved up the value chain and are now close to the top - they're building commercial airliners and designing and building phones every bit as good as an iPhone.
In spite of that this education system is still pretty poor and China has not engaged in any reforms similar to Hartz.
Since you used the phrase "trickle down economics" as if it were a formal economic theory, I discount every thing you stated because you don't understand the phrases you are using.
Two posts in violation of a policy regularly broken makes it so if I complain about this bad behavior someone else is using against me, such complaints are not relevant, but I may be banned from your website.
These types of selective moderation make HN seem like the typical hive-mind that shouts down and uses abusive moderative tactics to prevent any diversity of opinion from sticking around.
Not sure why you are down-voted.
It's obvious that this is part of the trick and many economist have pointed it.
It works the other way too, the currency of other countries in the Eurozone is above what it would be without Germany, and all that without a fiscal stabilizer between the countries, like it do happens in the United States between different states.
It's a recipe for disaster if the goal is an united Europe.
Now, if the goal is to make Germany richer then we are in the correct path.
He is right in some way, but he also misses that german workers had to take a lot of cuts in pay, benefits and working conditions. While french workers only have a 35 hours work week and greece workers get to enjoy a long pension, germans work till 67 (soon 69) getting a lower pension (as percentage of pay) and mostly work 40 hours (for full time workers. Statistics are heavily skewed by (mostly) female part time work which is tax-incentized). Many countries did not adjust as hard to a globalized world as germany did (real wage loss in the last ten years while lowering pension, pushing back retirement age, etc.)
Well, and that's part of the problem no? When the economy improves why is not the welfare of the Germans improving? If not that their people have a better life, what it means that an economy is going well then?
We read about micro-jobs and how some retired people have to work again in one of the richest countries in the world.
What is the point of a stronger economy if the life is harder for their inhabitants?
I think that part of the answer is that this is a fight between countries only in appearance (or only as an excuse).
The thing is that the conditions have changed considerably. In earlier times there were 3-4 people working for every retired person and the average retirement span was ~5 years. Now it's 2:1 and ~15 years in retirement. Something has to give, sadly...
While there is definitely some truth to the effects of the value Euro being "too low", I don't think that is the "main reason" for the number of German middle class manufacturers which the article is talking about. This is rather a historical artifact and did not develop in the last 17 years since the introduction of the Euro.
I would also like to mention that currency value is not simply a banking vs. industry result in my opinion, there are many up- and downsides to "currency surpression" and Germany does not decide about the value of the Euro but the members of the Eurozone do.
Daimler and Porsche have both had company wide 10000 EUR bonuses (this includes factory workers). It does not include ANÜ engineers and workers, who make up the major part of the workforce and are second class employees that have a lower base wage and no bonus.
Unions are hell bent on keeping it this way, to the detriment of ANÜs and the benefit of full employees.
There is nothing bad in being a large or the largest exporter. Germany exported a lot and imported a lot.
But recently this had led to the absurd situation, that Germany exports both, goods AND capital:
https://www.querschuesse.de/wp-content/uploads/2013/11/1a18....
Sure. The graphic is misleading, since it is not adjusted to GDP - thus it does not show the proportions of exports in relation to the size of the economy.
Germany has managed to suppress the value of its currency over the years to make its exports artificially cheap, which encouraged growth, creating manufacturing jobs.
It did this firstly through reunification (dragging down the value of the DM) and subsequently by joining the Euro (Southern Europe had the value of their currencies pegged higher than their 'natural' value, Germany's was pegged lower).
Germany's export boom after joining the Euro would have been short lived if they reverted back to the DM as the value of their currency would have risen in value, pushing up the cost of exports, ending the boom. Instead it continued unabated.
China also achieved the same thing largely by buying foreign debt (mostly US treasuries). As did Singapore, Taiwan, Hong Kong and Japan, all of which achieved similar results. There's no magic sauce, it's just a question of whether industry takes political precedence over banking (which likes an overvalued currency).