The inconvenient truth of modern German Economic Hegemony & its implications

By Oliver Green

The time has come to grasp the nettle of inconvenient truth that is 21st Century German Economic Hegemony and the destabilising, contentious and unsustainable effect it has had and will continue to have through the Eurozone.

According to ‘The Economist’, In 2016 Germany’s trade surplus rose to a staggering $300 Billion, pushing China into second place with its $200 Billion surplus. What this surplus represents is a massive atypical savings glut over the nation’s expenditure, which is to the detriment of much needed and overdue investments in its infrastructure, which has been in part made possible by the German Governments rather atypical harmonious relationship with the nation’s Trade Unions, which is based upon the rather atypical competitiveness of its industrial sector for a European Western Economy, having bucked the general trend of the United States and Western Europe for reasons which I’ll explain. The result is an economic model reminiscent of the sort of early post-war export led manufacturing boom enjoyed by the United States and Britain throughout the 1950’s and 60’s, creating and preserving many more blue collar industrial sector jobs than is usual for most 21st Century Western economies and why Germany has remained untouched and unfazed by the sorts of political resets taking place just about everywhere else. It’s also made the German economy far less reliant on consumer spending for its growth than many of its developed counterparts, with consumption accounting for around 54% of GDP, compared with around 65% for Britain and 69% for the United States, with Switzerland, Sweden, Denmark and Holland also holding sizable surpluses in the same period.

But for a large economy like Germany to hold a trade surplus greater than 8% of its GDP puts an unsustainable and massively destabilising strain on the global economy, with the heaviest and most acute strain on the Eurozone. It effectively forces the other nations of the Eurozone to massively overspend and borrow in order to try and maintain their own levels of employment and aggregate demand and preserve the very engine of growth that they became forced to rely upon when entering into Currency Union with Germany, culminating in the ongoing debt crisis of the southern Eurozone, especially Greece. Throughout the high inflation period of the 1970’s and 80’s, this sort of saving served to stabilise the continent, but by continuing with it beyond what was required, the new Euro style Germany Hegemonic Economy is creating a significant drag on the global economy, whilst being a major underlying factor behind the stagnation and decimation of communities and living standards throughout much of Europe.

How this state of affairs will likely play out & the underlying implications for Germany

Ever since the Hyper-Inflation Crisis of Wiemar Germany, culminating in the political and humanitarian consequences of Nazism and World War II, a tendency toward caution has become deep routed in the German political class and national psyche. A basic rule of economics is that something which cannot continue doesn’t, the only question is the duration of its continuation and the manner in which it comes to an end. Ordinarily, politically and practically speaking, it is a great deal easier to introduce the measures required to deal with surpluses and savings gluts, in other words spend more, than it is to remedy deficits and excessive debt burdens, as much of the rest of the world can attest. Simply put, Germany saves too much and spends too little, resulting in an increasingly dilapidated infrastructure and lack of readiness for digitisation, with Germany falling to 25th in the world for internet download speeds, while the nation’s roads and schools are falling into disrepair.

Therefore, all any German Government has to do is spend its way out of the problem by providing the investment required for its ailing infrastructure, which would in turn erode its unhealthily high surplus within one or two parliamentary terms. But given how addicted Germany is to exports, which account for more than a whopping 47% of its GDP, with more than 67% of those exports going to Europe. Consequently, the German government and people became inevitably reluctant to forgo the immediate advantages and dividends of their export driven model, and will not want to do anything to jeopardise the relative weakness of the Euro by embarking on the sort of spending spree required to fix the problem, especially given the Euro’s global popularity as the second most traded reserve currency after the US Dollar. Successive German Governments will also have no interests in jeopardising the leverage provided by their national surplus in relation to their trade with Asia, which accounts for around 18% of their GDP. In addition, despite recent high levels of immigration, Germany still has a problem of an aging population, which will make any transition to a more consumer based economic model more perilous than it might otherwise be, coupled with the fact that there is very little spare capacity left in the domestic economy, with unemployment at a record low of around 4%.

Furthermore, the continuation of Germany’s export driven model is also depended upon its membership of the Euro and Hegemony over the Eurozone, which ensures the relative weakness of the currency its uses in relation to the size and competitiveness of its economy, coupled with Germany’s dominion and control of the zone to ensure its best serves its ends. This also highlights another motivation for preserving the savings glut, which is the desire to maintain a comfortable cushion of reserves to bail the currency zone out of the future crisis it will inevitably sustain, which Germany will remain the primary and major guarantor of it for as long as it exists, continuously propping it up to preserve its contentious position in global trade and gaming of the European continent, until such time as the economic cycle, the markets and subsequent political ructions call time on the whole thing and the German economy is left without a paddle, whilst finding itself at the epicentre of a perfect storm of its own making.