Tuesday, February 14, 2012

Exporting VWs

Europe’s largest economy has been booming recently. Germany’s unemployment rate is now at a twenty year low, and despite the ocean of chaos surrounding it, Germany increased exports to over € 1 trillion last year. (In comparison, the USA, with a population three and half times larger, was slightly behind Germany in total exports.) In fact, in some ways, Germany has actually benefited from the Euro crisis. Investors have poured money into German government bonds, pushing down the cost of borrowing. This savings for the government has added up to billions of euros per year. Furthermore, weak economies in most of Europe have helped to push down the value of the Euro. This makes German exports cheaper, and thus more competitive.

This record export figure, however, has also led to a record trade surplus. While in many ways good for Germany, the burgeoning trade surplus angers many of its neighbors. Its detractors argue that if Germany exports more than it imports, the country is, in effect, exporting unemployment. This unemployment forces other countries to borrow more, worsening the situation. France and the United States have been especially vocal in their disapproval of the German model. Those two countries have been urging Germany to encourage more domestic consumption. This would have a two-pronged effect, they say. German industry would export less because more of the goods produced would stay in Germany. It would also create a demand for more imports. With the Germany economy humming along quite nicely, though, this argument has fallen on deaf ears.