The export machine of the Chancellor Angela Merkel generate a much higher revenue than the German state contribution to the fight against the crisis in the euro area. European currency depreciation increases the competitive advantage of the country, according to Bloomberg. The yearly benefit of German exporters is €100 billion, in the context of instability, said Nathan Sheets, chief economist for Citigroup’s international division. That is over 10 times more than the €8.7 billion contribution of Germany in 2012 to the emergency fund which is in the making (European Stability Mechanism). The very high figure highlights Germany’s benefits from Merkel’s strategy with emphasis on austerity.
German executive approach has drawn criticism from political leaders around the world and requests for relaxation of the countries in southern Europe, where bond yields have risen to high levels. “Do they care? I do not think so. It is a world where everyone swallows whomever they can. It is a question of strengthening levees and do what we can for us,” said David Buik, an analyst at Cantor Index in London, in a telephone interview on German leaders. Two-year German bond yields turned negative for the first time in June, so that investors have paid to keep their money in Germany.
Competitiveness gains means that Germany now has a currency about 20% lower than if there had been German Mark, said Citigroup economist. Weaker currency increases the nominal trade surplus of Germany with about 4% of GDP or €100 billion, according to the analyst. The benefit generated by the depreciated currency could rise to almost 30% due to capital inflows seeking safe investments.
Euro has reached the minimum of two years last week, offering new support to a country where labor costs rose previously more slowly than in the neighboring countries. “The weaker euro is certainly a support for German exports and it enhanced the resistance of the economy,” said Christian Schulz, an economist at Berenberg Bank in London. Berenberg Bank economist estimated that about 60% of German exports are delivered outside the euro area, compared with about 50% for France and 42% for Spain, according to 2010 data.
Since the introduction of the euro in 1999, German exports rose 120%. Those of France and Italy rose 40%, while for Greece they only rose 30%. Analysts of Bank of America Merrill Lynch calculated that Germany would have lost more than any other country if they would leave the euro zone. German currency would appreciate by 14% immediately and contribute to a reduction in GDP of 7% or €185 billion.
Reply