Is Germany Really a Model?

I do not understand the fascination that commentators and politicians have with the so-called “German model” of economic growth and macroeconomic policy. Most articles in the international media refer to “the German powerhouse”. Well, “powerhouse” is not an identifiable economic concept, but looking at the statistical facts is sobering. Since 1950 the real performers in Western Europe have been Austria, Italy and Spain. Admittedly, Spain was lagging other European nations levels of living so that catching up was easier and more rapid there, but that was not the case of Austria, nor of Italy, this last country being reputed for lax economic management and high inflation as well as repeated currency devaluation.

Even France, which started from a higher income per capita in 1950, having escaped the massive destructions that WWII brought upon Germany, still did better in 2008.

Gdp per capita

(1990 International Geary-Kharmis dollars)

Statistics on World Population

www.ggdc.net/maddison/Historical…/horizontal-file

                        1950               1970               1990               2008

Austria           3 706              9 747              16 895           24 131

France           5 186            11 410             17 647          22 223

Germany       3 881              10 839             15 929        20 801

Italy                3 502              9 719               16 313         19 909

Spain              2 189              6 319                12 055        19 706

Total WE       5 005              10 925              16 797         22 246

Total 12 Western Europe                                        

(Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Sweden, Switzerland, United Kingdom).

I can find only one explanation for the inflated reputation of Germany: its low inflation in the medium run and thus the high value of the DM. But a hard currency is not the key to economic performance and welfare.

Now regarding the slightly better performance of Germany in the current crisis, since 2008, it is completely clear that prices and wages have been growing more rapidly in southern Europe, compared to the German evolution, since the creation of the euro in 1999 (see here, and also Mark Thoma here, as well as Paul Krugman here).

It follows that the German exports towards the so-called “PIIGS” (or by the less derogatory acronym “GIPSIS”) are growingly subsidized by the undervaluation of the real intra euro “shadow exchange rate” between members of the zone. This is unfair competition, built in and locked in the euro.

The recent relative performance of the German economy is thus not due to “German virtue”, as politicians everywhere would have us believe, but to an unfair rigging of foreign trade. The real culprit of other nations’ trade disequilibrium is not China. It is to be found in Frankfurt.