Will Germany be the weak link that would cause the euro zone to collapse?


Is Germany going to be the weak link that could cause the euro zone to collapse?

Is Germany going to be the weak link that could cause the euro zone to collapse?

©Ludovic MARIN / AFP


Germany was faced last May with a trade deficit. Is the deterioration of the German economic situation likely to worsen with the current crisis?

Atlantico: For the first time in years, Germany recorded a trade deficit last May and more generally sees its surplus melt away. To what extent is this a sign of a deterioration in the more structural German economic situation accentuated by the current crisis?

Rémi Bourgeot: The German trade surplus was propelled from the mid-2000s on an extraordinary path, with a current account surplus almost continuously exceeding, from the beginning of the 2010s, 7% of GDP. Beyond a historical propensity to over-export, this commercial performance has been fueled by a political as well as an economic strategy of squeezing wage costs with the reforms of the 2000s. This approach was coupled with a compression of energy costs by the development of Russian gas imports, at the expense of diversification strategies by the south, which have been largely abandoned or reduced to fragmented projects, incomparable with the northern route. With Nord Stream 1 then 2, the country was to have access to a supply exceeding its national needs and to become the nerve center of the European gas system, by re-exporting its direct imports of Russian gas, thanks to a vast storage and redistribution system.

The energy crisis is now profoundly disrupting this economic model. Behind the current consumer price inflation figures of around 8%, the surge in energy prices, of the order of 100%, is driving up production prices, which have increased by 37% over one year. . This is a radical change in economic conditions that calls into question its industrial positioning. And even beyond the question of prices, it is the prospect of energy rationing that gives rise to the greatest fear of a destabilization of industrial production, which will be added to the long list of shortages which European industry is already experiencing. .

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Faced with the current situation, combined with the 75 basis point rate hike by the ECB, could Germany become the weak link that would cause the euro zone to collapse?

A distinction must be made between the developing economic crisis, with Germany at its centre, and the threats to the architecture of the euro zone, which are again and again focusing on the countries most sensitive to the rise in rate.

The constitution of a massive trade surplus was at the heart of the German growth strategy, in particular to reduce unemployment in the 2000s. Then, with the euro crisis, this strategy of cost reduction suddenly imposed itself. to the so-called peripheral countries, which for the most part have embraced it without restraint, such as Spain in particular. The trade surplus has become central to European economic strategy, weak as the resulting growth has been. This strategy was above all based on the reduction of wage (and energy) costs much more than on productivity gains and the development of cutting-edge skills. This is the main flaw of this approach. Europe today finds itself behind on many fronts of the ongoing industrial revolution and retains an uneasy bystander status in many areas of raging technological warfare, as exemplified in electronics and the response to shortages semiconductors in particular.

The change in the trade position of the euro zone with the appearance of a deficit which continues to widen, largely fueled by the erosion of the German surplus, is shaking the strategy to which almost all of the euro zone to avoid the break-up ten years ago. With regard to the architecture of the euro zone from the point of view of the debt markets in particular, Germany, with its low public debt and its gigantic trade surpluses accumulated over thirty years, does not call into question as such as the financial integrity of the euro zone from the point of view of market pressures on rates. On these markets, it is the countries whose very high debt requires low rates to be refinanced, which find themselves in a more difficult situation. And no simplistic solution is offered to them to get out of it this time, whether it is a monetary flood by the central bank (whose arsenal is neutralized by the challenge of the fight against inflation) or generalized cost cutting.

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Can Germany reverse the trend, economically and politically?

It is now necessary to operate an economic revolution to get out of the focus, easy, on low costs, whether energy or wages. Compression of energy costs has developed on the basis of a renunciation of the objective of energy diversification, greatly aggravated by Germany’s hasty exit from nuclear power, which has made it even more dependent. As for the compression of labor costs, it has often been pursued at the expense of innovation and the grains of productivity, leading to a headlong rush of technological distancing from the continent. In the German case, this approach was based on an excessive insistence on the effects of brand and prestige linked to a “made in Germany” which had however lost part of its industrial meaning, as much with regard to the break-up of the chains of production than the reality of the technological content. From electric vehicles to electronics, Germany and Europe thought they could rely excessively on advantageous positions inherited from the past without sufficiently projecting themselves technologically. The situation is particularly worrying in Western Europe in general. The strategy of extreme geographic optimization led to a relegation of scientific and technical skills in favor of a focus on the managerial aspect and services that were often not very tangible, while Central and Eastern Europe became the breeding ground for technical skills, and in particular mathematics, of the continent. Advanced artificial intelligence centers are opening more readily in Romania today, thanks to these low costs of course, but also and above all because we have never stopped teaching mathematics there according to advanced conceptual standards, formerly known as “French style”…


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