Posted By: Matthias Paul Kuhlmey
A lot of interest is being generated around “my people” (more specifically, the Germans) these days. Among other news, the recent edition of The Economist is featuring a cover story entitled, “Is the German model worth copying”?
Why even bother? It appears that in the midst of a failing Europe (tbd), the German economy has shown extraordinary resilience, still posting somewhat attractive economic returns because of its stellar employment situation. If one considers that the average cost for an hour of labour in Germany is over 30% above the average cost of labour in the European Union, the picture is even more impressive. The explanation, from my humble view, is complex, but a couple of points are indeed noteworthy:
First, the savvy German Mittelstand (mainly family-owned, mid-size businesses that account for 50% of German GDP and 70% of all employment) has been conditioned to compete at unfavorable terms for decades; a strong Deutschmark prior to the implementation of the Euro was every exporter’s nightmare. What was done? Quality was increased to the point of making price a secondary consideration. Secondly, we (taking the German side), had our fair share of dealing with significant unemployment over 10+ years, specifically after the German reunification in 1989. One may conclude that we have learned how to deal with a challenging environment; for years, austerity was the norm, not the exception.
The above progression, as we know, was not the case for most Anglo-Saxon nations or other select economies in Europe. Lack of austerity, credit expansion, and related speculation often created a false impression of economic success. Think of Spain, for example, where housing/real estate was a one-sixth contributor to national GDP, not long ago. Funny enough, it did not seem odd at all. On the other hand, Germany’s heyday did not include such a housing bubble (although they have experienced an increase more recently), and, yet, 85% of Germans are satisfied with their standard of living. Further, on the merits of the old Teutonics (Germanic people), countries that run positive account balances are by definition (oversimplified) savers on a national level – most certainly the case for Germany (and China, for completeness of the story).
Now the really amusing request, generally posed by The Economist and others is that the “cheap Germans” need to get off their behinds and maximize consumption. In other words, the Germans are a pain to the rest of the world, as surpluses (or savings on a national level) must be distributed – save less and give to the needy! Brilliant!
The Germans, however, may already know that the “sweet ride” is about to change. Their biggest export markets are neighboring Europe and the emerging world, specifically China. Things are not looking so good, and the exporting business may be quite painful going forward. Better hold onto your money!
In conclusion, a bit of history: The article in The Economist is actually titled, “Modell Deutschland Über Alles” (Germany above everything), which is somewhat distasteful, considering that this was the message of the first verse of Germany’s national anthem, Deutschlandlied, during times of being the world’s most unreasonable aggressor. This opening verse was eventually removed (along with the second verse), and only the original third verse functions as Germany’s official national anthem, since 1952.