This in a nutshell.
Why is the German economy so strong?
- Thread starter FutileBreadMachine
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This in a nutshell.
I think they'll be the first big country to dump the euro if it keeps going down the pan.
KaHn
I very much doubt it. Germany was one of the biggest pushers for the euro in the first place.
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[TW]Fox;21219696 said:
Apparently "shrank roughly 0.25%"
Overall 3% growth in 2011
Yes but they are a smart nation, how much are they willing to lose if they have to keep bailing out members?
KaHn
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It is interesting isn't it.
Except war....
And it looks like they're better for it.
Deleted member 66701
Deleted member 66701
They also have excellent labour relations and strong unions. It's well proven that trade Unions have a large positive impact on a countries economy, contributing to higher trained workers, more productive workers, higher retention and having lower workplace injuries and illnesses than non-unionised workplaces. TU's save businesses money in the long term.
http://www.thompsonstradeunionlaw.c...#union_reps_provide_excellent_value_for_money
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What they have in common though is manufacturing base, China is also wealthy through manufacturing. US/UK had a manufacuring base but let it decline and instead focused on financial services which has recently blown up in our faces.
Except war....
They would have beat us in that too if it was 1 v 1, they basically took on the whole of Europe and were doing okay until the USA came in at the last minute for the spoils.
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People have explained about their exports being strong but not really properly....
Firstly, they gained a lot from the allied forces helping to rebuild their manufacturing industry after the war. But basically, they have a strong manufacturing industry. This is due to all the reasons that people have said above, good work ethic etc.. etc..
However, what people tend to miss, is how Germany have used the Euro to its advantage. Up until about 2002, Germany was running a positive, but smallish balance of trade. Once the Euro hit, this balance of trade became a lot bigger. This was achieved through the Euro.
Germany has always been one of the strongest currencies in Europe, and, under a floating exchange rate, we would see the Deutsch Mark being a really strong currency - as it was for a number of years. Basically the exchange rate market compensates for the strong economy and exporting industry.
If we consider a Euro of two countries (Germany and Greece - they're good extremes). When Germany entered the Euro, weaker economies, such as Greece, who traditionally would have had a much weaker currency under free floating exchange rates, brought down the strength of the Euro. Therefore, we hit a middle ground. So let's say, against the £, the Deutsche Mark was 1:1 where as the Drachma was 2 Drachma for £1. Now it averages out at about 1.5 Euros per pound for BOTH economies.
This means two things. The Greek economy starts to struggle as it can't produce goods at the correct rate, and it's products are being overvalued, and so it struggles to compete. On the other hand the German economy, becomes very competitive internationally (in the export, and coincidentally manufacturing, market). There high end products that would traditionally have demanded a premium because of the exchange rate with the pound are now being undervalued, and as such their effectively becoming overly competitive. Therefore their goods are selling really well, due to this undervaluing and this is why since about 2002 - the time that the Euro was created - Germany's balance of trade has increased massively.
They're basically doing exactly the same thing the Chinese are doing, whereby the Chinese fix their exchange rate low, to boost their exports. However, whereas America complain about the Chinese doing it, because it is very obvious, there are not so many complaints about the Germans because they're doing it under the cover of the Euro.
I've tried to make the theory in this as simple as possible, but this is basically why the German export market is so strong. It's also why they wouldn't want the Euro to collapse.
On top of this strong export market, Germany didn't fall into Gordon Brown's trap of 'Boom and bust is over'... Rather than taking the advantage of boosting the economy as much as possible during the boom pre-recession time, Germany actually maintained a relatively high (compared to the UK), unemployment level, but this meant that when the recession came, they didn't see the massive increase in unemployment, because their unemployment level was not artificially lowered by the Boom, and was therefore relatively stable. Stable unemployment level also helps stable inflation rate - see Phillips Curve.
Anyway, that's the long version of 'they export a lot' tl;dr
kd
Firstly, they gained a lot from the allied forces helping to rebuild their manufacturing industry after the war. But basically, they have a strong manufacturing industry. This is due to all the reasons that people have said above, good work ethic etc.. etc..
However, what people tend to miss, is how Germany have used the Euro to its advantage. Up until about 2002, Germany was running a positive, but smallish balance of trade. Once the Euro hit, this balance of trade became a lot bigger. This was achieved through the Euro.
Germany has always been one of the strongest currencies in Europe, and, under a floating exchange rate, we would see the Deutsch Mark being a really strong currency - as it was for a number of years. Basically the exchange rate market compensates for the strong economy and exporting industry.
If we consider a Euro of two countries (Germany and Greece - they're good extremes). When Germany entered the Euro, weaker economies, such as Greece, who traditionally would have had a much weaker currency under free floating exchange rates, brought down the strength of the Euro. Therefore, we hit a middle ground. So let's say, against the £, the Deutsche Mark was 1:1 where as the Drachma was 2 Drachma for £1. Now it averages out at about 1.5 Euros per pound for BOTH economies.
This means two things. The Greek economy starts to struggle as it can't produce goods at the correct rate, and it's products are being overvalued, and so it struggles to compete. On the other hand the German economy, becomes very competitive internationally (in the export, and coincidentally manufacturing, market). There high end products that would traditionally have demanded a premium because of the exchange rate with the pound are now being undervalued, and as such their effectively becoming overly competitive. Therefore their goods are selling really well, due to this undervaluing and this is why since about 2002 - the time that the Euro was created - Germany's balance of trade has increased massively.
They're basically doing exactly the same thing the Chinese are doing, whereby the Chinese fix their exchange rate low, to boost their exports. However, whereas America complain about the Chinese doing it, because it is very obvious, there are not so many complaints about the Germans because they're doing it under the cover of the Euro.
I've tried to make the theory in this as simple as possible, but this is basically why the German export market is so strong. It's also why they wouldn't want the Euro to collapse.
On top of this strong export market, Germany didn't fall into Gordon Brown's trap of 'Boom and bust is over'... Rather than taking the advantage of boosting the economy as much as possible during the boom pre-recession time, Germany actually maintained a relatively high (compared to the UK), unemployment level, but this meant that when the recession came, they didn't see the massive increase in unemployment, because their unemployment level was not artificially lowered by the Boom, and was therefore relatively stable. Stable unemployment level also helps stable inflation rate - see Phillips Curve.
Anyway, that's the long version of 'they export a lot' tl;dr
kd