German Economic Thought and the European Crisis
J. Bradford DeLong

What would the German export sector look like?

“Just consider what the state of Germany’s export sector would be right now if Germany were not part of the euro, and had the real exchange rate of Switzerland.”

I’ve considered it, and I think the answer is actually “more or less the same”.

Looking at the actual current account of Switzerland suggests that a Germany which had fixed to CHF wouldn’t have necessarily done any worse …

And the story of the 00s in German exporting (the 90s, of course, were when Germany ran quite sizeable deficits) is one of the bilateral trade between Germany and China. German industry makes “the thing that makes the thing that makes the thing”, notoriously, which makes its exports very price-insensitive to a country like China, which has a huge export market for things, which ensures a massive domestic market for thing-making things, and a consequent import demand for thing-making-thing-making things.

The view of Ordoliberalism as being based on US demand as an importer of last resort isn’t by any means wrong, but if the Euro was structurally undervalued because of Greece (and Spain, presumably, a country of 11 million people and €240bn GDP can’t really be moving the value of such a large currency on its own), then why didn’t France benefit? Or Italy until about a year ago?

Everyone wants to find a version of history under which all the problems of the Eurozone are Germany’s fault, because everyone knows that all the solutions involve Germany paying. But it’s not really true; Germany spent the early years of ERM/EMU paying far more than anyone else was prepared to in order to smooth the adjustment path for the former Communist states. And after fifty years of structuring everything in Europe to prevent German hegemony, is it really a big surprise that Germany isn’t well set up to act as a hegemon? Imagine if the USA had lost the war in the Pacific and was today being blamed for its failure to ensure the economic development of the Phillippines.