External Expansion Limited

Wednesday, 19 February 2014

THE EUROPEAN MARKET AND GERMAN ENGINE


Germany intervenes favorably in other European economies, while these are wary their best situation and believe the opposite. Is necessary to reverse this point of view and the whole of the European Union works together to transpolar German success in foreign trade, fostering a climate that promotes international trade in Europe internally and with the rest of the World.

The European Union has undoubtedly benefited Germany, but have no doubt, has also benefited other European countries, although some have been rescued. Do not forget that prior to the aid received, the today considered the peripheral countries of the euro zone lived like developed countries. It is clear that they have not done things very well, because culturally all European countries are different from one another, and even within them there are many concepts that divide the rest of the country, such as the current case of the intended independence of Catalonia from the rest of Spain .

According to what is of interest in this blog, facing the international trade should be no doubt that the European Union promotes trade between these countries and other economies outside Europe. Maintenance and continuity of the euro area, as well as the continuous incorporation of more countries in regard to maintaining a single monetary policy is also necessary.

Noting the current European situation, many criticize that Germany is the only favored by the union and has not been suffering the devastating events of the crisis as most economies that make up the region, when this is not totally true. Germany was also affected by the crisis, the labor market increased its unemployment rate, although it is true that Germany suffered the crisis during a shorter period of time. There should be no doubt that it is because they do relatively better things than other economies of the European Community.

Recently, the vice president of the European Commission, Olli Rehn, published an article on his blog, appealing that the German surplus beneficially serve to transform the rest of the economies of the euro area. Consequently, one of the recipes put on the table to encourage domestic production of other European Economies, has been the main ingredient of foreign trade, consisting strive to improve the competitiveness in the international market and has been encouraging to copy the German model. This is because Germany has done it very well, and should be the basis to enable its partners to grow in this area as them.

In Germany , Angela Merkel has formed her new government and is preparing to meet the new challenges. She must assume major challenges for the necessary reforms of its domestic policies and continue its commitment to the policy of the euro and European politics. The last two influence in the management should make Germany's current account surplus, since important organizations like the International Monetary Fund, the European Commission and the Ministry of Finance North American, criticized and viewed with concern the imbalance between German imports and exports. German exports in 2012 reached 43% of gross domestic product (GDP) and the surplus stood at about 170 billion euros or 6.4% of GDP. In 2013, only in the first half, over 7% of GDP.

Nothing new is comming, because Germany is exporting more than it imports since 1952. Until the millennium change, Germany keeps maintaining a surplus of 1% and 2%, maximum 4% of GDP, and coinciding with the new single currency, the figure began to exceed 6% remained persistently at that level, proving without any doubt that Germany has a superior competitiveness to rest, and this is what they must learn to do the rest of countries in European Union, and Germany to teach them how.

Other data supporting that Germany should not curb their exports to not affect the rest of the countries in the euro zone is that its current account surplus generated especially outside the euro zone or the EU, mainly to Asia, Eastern Europe and USA. The problem we see is that the German export strength associated with a weak import entails maintaining a high exchange rate of the euro, which affects exports and growth in other euro zone countries. For this reason, the European Commission debates set a limit of 6% of GDP surplus in the trade balance, although compromising the German competitive advantage for the entire euro area does not suffer the consequences it is not a solution, since on the other hand, accumulating foreign assets by German export surpluses involve high risk of loss, as was the case with the off debt in Greece mainly suffered by them. In this respect, the German Institute for Economic Research estimated that the Germans since 1999 accumulated losses of 400 billion euros for its foreign assets.

What they should do is to strengthen domestic consumption and investments in Germany, without jeopardizing exports. Stimulating domestic demand and investment would reduce the surplus in the trade balance. From the point of view of domestic consumption, there are bureaucratic barriers to the creation of new businesses, so it is necessary to continue by the way of reducing these barriers and promote equity shares. At the same time, should favor the increase of wages and improve employment opportunities mainly of women. From the point of view of domestic investment, there are studies that show very low levels of the same. Therefore, Germany should remove the debt brake, even if it is justified, and that this public investment blocks. Also, note that changing the energy model generates insecurity and a negative climate for investment in this market. Halting the rising rents discourages investment in housing construction. Excessive regulation of all types of infrastructure adversely affects investment, so should liberalize market infrastructure services generating a climate to attract foreign private investment with a reliable context conditions that promote the competition and the investors within Germany.

It is clear, that weakening the engine of the European economy will not favor the start of the weakest. Should not be any doubt, that it is necessary and should also be required to the rest of member states enhance their competitiveness reaching the level of Germany, and not otherwise. At the same time, Germany will make a good domestic work in their own interests by acting on these small imbalances which certainly will affect in the long term, obviously without impairing their exports.

If these policies are implemented by Germany and the whole of the European Community, believe may be initiated an important path of opportunities for the rest of the European countries, that favors the increase in exports to Germany, as well as, the rest of the world as they also would go improving their own competitiveness.

However, there will be attentive to the current international panorama that is coming by the part of emerging countries not believing ourselves that someone can to stand apart, topic that, discuss in a future article.

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Until the next article...

Leonardo Dufau
LinkedIn

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