It is a common opinion – even if it is a hope that has no foundation – that after the elections of next 22 September, the new German Government could adopt a more understanding attitude of the needs of the weak countries of the “European periphery” (including Italy); and therefore more willing to help them, especially indirectly, with a more expansive policy in Germany.
Those who support this thesis not only have no proof, but have understood little of the reform and economic policy strategy that has characterized the successive German governments of the last fifteen years.
Hoping that the next government will suddenly change its strategy, just because Germany has a significant surplus on its external accounts and therefore could afford a more expansive policy (or Keynesian, as they say) is also a non sequitur. The German current account surplus measures an equivalent accumulation of net foreign savings, the convenience of which also depends on the use to which it is destined.
But let's go in order and consider the three main aspects that characterize German economic policy.
- The Schröder strategy
A series of reforms - not very popular at the time - characterize the social democratic government led by Gerhard Schröder. The best-known reform is the one that makes the labor market more flexible, today criticized because it served to reduce labor costs, and therefore to protect the competitiveness of German production even in sectors with lower added value. But this is not the only strategic aspect that characterizes the years 1998-2005. It is necessary to reflect on how Germany then reacted to the challenge posed by globalization, consciously accentuating the complementarity of its economy with that of China. Wage moderation and higher exports on the one hand; growing foreign investment on the other hand.
When Merkel's chancellery (at the beginning of her first government) increases VAT by three points, to favor exports, no one in Europe protests: the Germans, who are already doing better than the other member countries, also allow themselves to do " competitive devaluations”…
- Correction of errors in the Euro
While the German strategy towards the global economy is clear and consistent over time, towards the European monetary union there have been ambiguities and mistakes have been made. However, it is worth emphasizing how these errors were then corrected, again in the long-term interest of the German economy, and of its European role.
The main mistake - if we want to call it that, in hindsight, because at the time no one underlined it as such - was that of having accepted (indeed, even worse, financed through its major banks) a growing real divergence (in terms of competitiveness and public deficits) between the German economy and that of the southern countries of the Eurozone.
When the crisis broke out in Greece in 2009, followed by the other weak countries of the Eurozone, Angela Merkel's government suddenly discovered what it should have known well, namely that when there is an excessive debt crisis, the debtor's troubles they also tend to become lender's troubles. But the reaction is once again in Europe's interest, provided it is also in Germany's interest. Chancellor Merkel agrees to help the weakest countries, always avoiding the political risks and costs of a bilateral approach. You get the IMF involved; you support the ECB's commitment (isolating the Bundesbank "hawks", who resign one after the other); she participates in every rescue plan (but it is European and never only German). What you get is a double political and economic benefit: Germany always helps those who repent of the sins committed and promises not to do any more…; and in the meantime she buys the time needed to secure her banks. The “non-performing debts” that were in the assets of the German banks have “become European” (exactly as several academics suggested…) to the extent that they have passed into the assets of the ECB!
- The "German ownership" of Europe is growing
Once the original -only-financial- setting of the Euro has been corrected, and its role as an instrument of integration has been re-evaluated, the German approach towards Europe acquires a prevailing industrial direction. It is the strategy explicitly pursued in recent years, and it cannot be foreseen that it will be changed soon. The growing current account surplus, equal to the financial balance of the German economy, can finance new investments elsewhere - which increase production capacity - but can also usefully serve to acquire existing production capacity, which is complementary to what already characterizes German industry .
The crisis – first financial, then economic, and finally industrial – of the countries of the European periphery presents numerous acquisition opportunities for German companies interested in confirming their role as hub European industry now taken over by Germany.
It is very unlikely that the next German Government - whatever the outcome of the elections of 22 September - can and will deny this strategy, adopting a more "short-sighted" one (from the German point of view) which has the objective of reinforcing precisely those economies that today present so many advantageous opportunities for German buyers.
