In the flood of individual reports about inflation, grain markets, Dax exchange television information, lack of chips, consumer climate index, consumer protection advice in the media, we recommend two basic articles on Germany’s economic model, which the authors now describe as a failed model. First, a contribution in Jungle World, which sees the first slump in the German export surplus as a trend indicator that the world export champion Germany is now over and explains this with the geopolitical, economic-political and geo-economic framework conditions, as well as the previously dominant neoliberalism:
„07/21/2022 The German export industry is threatened with a crisis
No more excess For the first time in over 30 years, Germany recorded a negative trade balance. A crisis is threatening the export-focused German economic model. Once upon a time there was a »world champion exporter«: In May, the German trade balance recorded a deficit for the first time since 1991, albeit just under a billion euros. German industry, spoiled by success, which has been responsible for (almost always large) trade surpluses since the 1990s, is apparently facing major problems. Two factors were decisive here: the rapidly rising prices for energy sources and raw materials and the continued disruption in global supply chains, as a result of which companies in Germany are missing components for production and prices for imports are rising. The cost of imports rose by 27.8 percent to 126.7 billion euros compared to the same month last year, while exports increased by only 11.7 percent to 125.8 billion euros. Compared to April, the new trend is even clearer: the value of German exports increased by only 0.5 percent, while imports increased by 2.7 percent. The preservation and expansion of German industry came at the expense of other countries, where deindustrialization took on enormous proportions and unemployment and debt rose. Germany’s company representatives seem to be adjusting to the fact that the era of high German trade surpluses, which had already fallen from 224 to 173 billion euros annually between 2019 and 2021 due to the pandemic, is threatening to come to an end. At the beginning of July, Volker Treier, responsible for foreign trade at the Association of German Chambers of Industry and Commerce (DIHK), spoke of a long-term “export downturn”. An end to price increases and supply chain problems is not in sight.
The Federal Association of Wholesale, Foreign Trade and Services (BGA) commented that the „consequences of the Russian war of aggression and the disruptions in the international supply chains“ would „leave much stronger marks“ on the German trade balance especially if „gas supplies were to be cut off Russia« would come. Newspapers such as the Tagesspiegel saw the trade deficit as a „trend reversal with serious consequences“ that endangered the „German prosperity model“. Business journalists around the world even asked whether the „descent of Germany“ would result in a „social crisis“. In fact, the economic success of the Federal Republic in the 21st century was based on the fact that the foreign trade surpluses, which had been achieved for over 60 years, reached particularly high levels during this time. This was devastating for many other countries, because the high German trade surpluses, which often reached more than 200 billion euros, even 247 billion euros in 2017, correspond to equally large deficits in the importing countries. This connection is generally ignored in the ideologically led economic debate in Germany, but it should be obvious to everyone that surpluses and deficits in the foreign trade balances have to balance each other out globally. Germany’s prosperity – whose unequal distribution is becoming more and more pronounced – was based de facto on the export of debt to the target countries of the German export offensive. In this country it is considered a great success that Germany is still one of the leading industrial countries. The preservation and expansion of German industry came at the expense of other countries, where deindustrialization took on enormous proportions and unemployment and debt rose. The huge exports of German industry had their downside in the decline of competing industry in southern Europe, for example. The disputes between the federal government and US President Donald Trump, who had promised his voters to reduce the US’s huge trade deficit, also resulted from this connection. Trump started out in 2016 with a promise to help those parts of US society in decline to prosper again by relocating industrial production to the USA, whether through protectionism or through pressure on the large surplus countries China and Germany, which are also took advantage of the relative weakness of the euro versus the dollar. While he threatened tariffs on the German auto industry, his administration imposed import tariffs on China that, significantly, have not been reversed by the current US administration of Joe Biden.
These protectionist tendencies and trade policy conflicts, which were preceded by currency devaluation races, are the result of the systemic crisis of capital, which lacks a new accumulation regime in which mass wage labor could be used profitably in commodity production at the globally given level of productivity. Instead, competing capitals are in an increasingly fierce struggle to keep the effects of the crisis at bay as best they can. This systemic crisis manifests itself in a global debt that is growing faster than the global economy and now amounts to 350 percent of global economic output at 296 trillion US dollars. The hyperproductive system runs on pump, so to speak. The crisis competition between the business locations, in which the Federal Republic was so successful, thus resulted in the debt obligation being passed on to other economies by means of trade surpluses. The high German trade surpluses were a result of the introduction of the euro and the so-called Agenda 2010. The German current account, which includes trade in goods as well as services, was balanced in the 1990s and only showed relatively manageable surpluses.
Only the introduction of the euro brought with it the huge German trade surpluses, especially compared to the other countries in the euro zone. Because the single currency prevented euro countries from being able to react to the rapidly increasing German trade surpluses with currency devaluations, while the Hartz laws ensured that labor power was devalued in Germany. This strategy of the soon-to-be-called export world champion was only possible due to the corresponding accumulation of government debt, especially in the southern euro zone. The resulting speculation and debt bubbles burst in 2008. After the outbreak of the euro crisis, Germany was able to pass on the social consequences of this to the crisis countries in the southern periphery of the currency area, thanks to the austerity dictates embodied by Finance Minister Wolfgang Schäuble (CDU). At the same time, due to the structural undervaluation of the euro in relation to the performance of German industry, a geographical realignment of German trade flows took place. While the crisis in southern Europe weakened demand for German goods there, German trade surpluses for exports to non-European countries grew rapidly. The euro zone, which initially had a balanced trade balance, generated growing trade surpluses after the euro crisis, after the currency area had been damaged by austerity policies and internal devaluation to become »German Europe«. But even that is over now: According to the statistics office Eurostat, the seasonally adjusted trade deficit in the euro zone rose last April from 13.9 euros in the previous month to 31.7 billion euros. It is by far the highest deficit in foreign trade since the currency area came into existence.
This is the systemic reason for the crisis in the German export industry: over the two decades in which global debt rose from less than 200 to over 350 percent of global economic output, Germany was able to pass the ongoing crisis on to others thanks to its export surplus, but now it is also threatening capture the economic center of the euro zone. The stable budgetary situation of recent years, including low, sometimes negative interest rates on bonds issued, was also based on years of debt export, which enabled the German government to mobilize hundreds of billions of euros to deal with the economic consequences of the Covid 19 pandemic and the Russian to cushion aggressive war. All of this is now at stake, even if Federal Finance Minister Christian Lindner (FDP) continues to promise to stick to the so-called debt brake. After all, the economic chauvinist rhetoric towards the debtor countries of the euro zone, with which Europe’s largest debt exporter is outraged at the mountains of debt that he himself is forcing the other countries to accumulate, should be silenced in the German public. However, this is likely to be the only positive domestic political consequence of the feared “export downturn” should this crisis tendency persist.
The German functional elite will probably react to the export crisis in the same brutal way as they initiated the foreign trade boom with the Hartz laws: the further devaluation of labor as a commodity at home could push the trade balance back into positive territory, around that which had fallen into the crisis to defend Germany’s accumulation model. In addition, the end of the export boom of the extreme right and euro-scepticism in the Federal Republic should provide a boost again if the eurozone changes from a competitive advantage to a mere cost factor and concerns about an export-promoting image of the Federal Republic abroad recede into the background.”
Professor van Ess, who as a China expert was also active in German business associations for a long time, commented: “Only if things go in the wrong direction with China. But then violently. Funny are the „monetary devaluation races“ that just couldn’t take place within Europe. The weak euro naturally made German goods cheaper, but so did Italian and French ones. There is a slight mental leap in the argument.”
Even more fundamentally, former Syriza finance minister Varoufakis sees the entire German economic model at the end, declares it a failure and calls for a reorientation:
„Yanis Varoufakis: A lie seen through with great pain Gas crisis
The German economic model has failed, says Yanis Varoufakis. His recommendation:
Dear Germans, if you don’t want to go back to the D-Mark, get rid of the past! It’s a terrible awakening when your country’s business model suddenly implodes. It’s hard to admit what is obvious: that the political elite was either blinded or lied when they claimed for decades that hard-earned living standards were secure. That the near future now depends on the goodwill of strangers. That the European Union, which society trusted, has hid the truth for a long time. That EU partners, who are now being asked for help, now see you as the bad guy who is finally getting his just punishment. That the business elites at home and abroad are looking for new ways to lead a country even deeper into an impasse. That you have to accept huge and painful changes so that nothing changes. We Greeks know this feeling. At the beginning of 2010 we experienced it first hand.
Today, Germans face a wall of condescension, antipathy, and even ridicule. Ironic as it may seem, no other European people know better than the Greeks that the Germans didn’t deserve this, that their predicament is the result of our collective European failings, and that gloating does not please anyone – especially the hard-tested Greeks, southern Italians, Spaniards and Portuguese (also called “PIGS” during the crisis) – bring something. In the meantime, the tide has turned because the German economic model has for many years been based on low wages, cheap Russian gas and outstanding expertise in classic mechanical engineering – and in particular the construction of cars with internal combustion engines. This led to huge trade surpluses in four phases after World War II: the US dollar-driven Bretton Woods system, which ensured fixed exchange rates and market access in Europe, Asia, and the Americas. After the collapse of Bretton Woods, when the European single market proved extremely lucrative for German exports. After the introduction of the euro, when goods and capital poured like a torrent from Germany to the European periphery via supplier credits, and finally when China’s hunger for intermediate goods and machinery more than offset the subdued demand for German goods in southern Europe as a result of the euro crisis.
Germany’s model was never sustainable
Slowly, however, Germans are realizing the decline of their economic model and are beginning to see through the complex big lie their elites have been telling over and over for three decades: budget surpluses were not a smart move, but a monumental failure. Long years of extremely low interest rates have failed to invest in clean energy, critical infrastructure and the two most important key technologies of the future: batteries and artificial intelligence. Germany’s dependence on Russian gas and demand from China has never been sustainable and, like a small mistake, cannot be ironed out quickly. The assertion that the German model is compatible with the European Monetary Union has also turned out to be false. Without fiscal and political union, the EU was bound to inevitably incur unpayable debt to Club Med governments, banks and corporations, which ultimately forced the European Central Bank to decide either to let the euro die or engage in a permanent bankruptcy procrastination project. With the ECB cornered and forced to choose between two evils and either hike rates sharply (thus triggering the implosion of Italy and other countries) or do nothing (and risk hyperinflation), Germans understand that now too.
It should never have been the task of the ECB to save the euro from the fundamental shortcomings of monetary union. But their failure shows Germans that their politicians‘ claim that the German economic model could survive the 2008 crisis if only other eurozone countries saved enough was a lie. They will soon realize that their elites‘ phobia of stimulus packages has led to enduring socialism for southern European oligarchs, French and German bankers and scores of seemingly dead corporations. In earlier times one often heard the view that all countries in the euro zone had to become just like Germany. Even then, I and other critics countered that the German model only works because nobody else is using it. Without cheap gas and with the new Cold War between the US and China, the German model no longer even works in Germany. Yes, the German export figures will also recover thanks to the low euro exchange rate. Volkswagen will sell many electric cars as soon as the supply chains are back in place. BASF will be profitable again as soon as the energy supply is secured. What will not recover, however, is the German model: Volkswagen’s earnings will flow in large part to China, the country where the battery technology comes from, and gigantic assets will shift from the chemical industry to AI-supported sectors.
Stop mourning the past
Some of my German friends are hoping that the falling euro will breathe new life into the German model. He won’t. Countries with low savings and a structural trade deficit like Greece and Ghana benefit from a devaluation. However, countries with high savings and a structural trade surplus do not. There it only ensures that poorer domestic consumers subsidize richer export companies. This is exactly the opposite of what the German social market economy needs. My message to the Germans is simple: stop mourning the past. Skip the usual mourning periods and start developing a new economic model. Unlike the Greeks, you still have a certain sovereignty and do not constantly need the approval of financiers. But first you have to solve a crucial political dilemma: Do you want Germany to remain politically and fiscally sovereign? If so, your new model will never work within our euro zone either. If you don’t want to go back to the D-Mark, you need a model that is integrated into a full-fledged democratic European federation. Anything else would be a continuation of the big lie you are painfully realizing right now.”
Yes, one wonders to what extent capitalism can be sustainable at all, as reformers like Davos boss Schwab and other CEO philanthropists hope for in his book Great Reset, together with Keynesianist reform leftists and then especially in matters of Europe, a good question, whether delaying bankruptcy of the ECB is still possible for a long time, whether the current strategy of fragmenting the increasing interest rates by country, i.e. structuring them differently, can avert a new euro crisis. Also the question of whether there is only the alternative DM or euro or not other models such as a northern or southern euro and what the consequences would be. Or if the problem would be solved if there were a European finance and economics minister. The question also remains as to whether the EU can and wants to transform itself into a European federation at all, or whether this is not the next pipedream, the EU might even break up or dissolve into a core Europe or a Europe of two or more speeds, as is the case now already partly.