Thu May 29, 2014
Germany's Economy Is Doing Well — And That's Bad For The Eurozone
Originally published on Thu May 29, 2014 5:11 pm
MELISSA BLOCK, BYLINE: Germany's economy is having a pretty good year so far. Manufacturing is high, unemployment is low. The economy is expanding, and yet the strangest report has recently come out of Europe. It says all of that success is actually a problem for the rest of the Eurozone. Zoe Chase of our Planet Money team wondered why Germany's success isn't considered a good thing.
ZOE CHASE, BYLINE: Germany's got a thing about making stuff the world wants.
JACOB KIRKEGAARD: Germany has always had what you could call an export fetish. You know, they've always been very focused on exporting as much as possible.
CHASE: Jacob Kirkegaard with the Peterson Institute says when you have incredible export growth, money pours into the country. And ideally when a country makes a bunch of money, they spend a bunch of money. That was the whole idea of the European union - the money easily flows from one country to another. Say you're an Italian winemaker. Gianluca Garofoli, this is what he thinks the Germans do with that money.
GIANLUCA GAROFOLI: They come with their cars, and they fill the truck of wine. This is the best thing.
CHASE: But that's not really happening these days, Gianluca says. Germans aren't traveling so much to Italy and buying fine wines. And this is backed up by statistics. Turns out Germany is exporting much more than it's importing. Rather than running a big deficit like many other European countries, Germany has a trade surplus - a big one. Jacob Kirkegaard says no developed country in the history of the world has ever been so successful and so frugal at the same time. And when you have a really big country not buying much of anything, that's a problem.
KIRKEGAARD: It's fair to say that if every consumer everywhere behaved like the German consumer, then the world would be in almost permanent recession.
CHASE: This is why the Germans got in trouble with the European commission. They recently put out a report saying, Germans, you're not drinking enough Italian wine or eating enough Spanish figs. Basically, you're not buying enough stuff. Your trade surplus is above allowable limits. So start spending, or you will be in really big trouble next time one of these reports comes out. Now, one reason this kind of imbalance happens is these are really different cultures around money that have come together to share the Euro. Here's Gianluca, the Italian winemaker.
GAROFOLI: I think it's a kind of an attitude of the German people. You are, like, cool if you buy something for reasonable price. It's a national mentality.
CHASE: I know this may sound like a stereotype - the penny-pinching German. But talk to a German.
PHILIP PLICKERT: I wouldn't pay too much for a bottle of wine actually.
CHASE: This is Philip Plickert, the economics editor at the German newspaper, the FAZ
PLICKERT: My budget for a bottle of wine would be six or seven euros. That's OK. That's reasonable. I'm afraid that Italian wine won't save Italy. They have to produce something else.
CHASE: Oh, Italy, you just got told by a German. That does happen in the EU these days. And the German household savings rate, it is really high. Germans are not splurging. But there's a deeper systemic issue in the European Union beyond culture that explains the surplus - the shared currency itself.
If Germany still had its own money, the old deutchmark, it would have been really hard to build up a surplus like this. If people wanted to buy German stuff, they'd have to use marks. The more popular German stuff got, the more valuable the mark would get. Their currency would get really strong. And that would have corrected the problem. German products get more expensive, exports slow down and inside Germany, the strong mark makes things like Italian wines seem super cheap. Gianluca, the winemaker, says in fact it was easier to sell his wines back before the euro, back when Italy was using the lira.
GAROFOLI: When we used to sell our wines in lira, obviously our wines were much, much, much cheaper. And it was much easier to export all over the world. So, yes, from my point of view, yes, it was easier with liras than with euros.
CHASE: But today, Italy and Germany are both on the euro. So exchange rates between the two countries do not automatically adjust to even things out. German cars seem like a deal. Italian wine looks expensive. The Germans keep racking up the surpluses, and the Italians rack up the deficits.
It's hard to solve this problem. Nobody wants Germany to produce fewer cars, but it's also hard to make individual Germans change their behavior. Here's Plickert, the German newspaper editor.
PLICKERT: How should you order people to spend their money? I mean, it's a free country and this is a free economy. I mean, we don't have a kind of commissioner who orders people to spend or to save. It's millions of individuals who make their individual decisions.
CHASE: Theoretically, if Germany makes no changes and the surplus gets worse, they'll have to play a fine to the European Commission. Money that will be put into a bailout fund for Eurozone countries. Zoe Chase, NPR News.
ROBERT SIEGEL, BYLINE: This is NPR News. Transcript provided by NPR, Copyright NPR.