A small note for the TUC

We\’re getting a certain amount of whining from the TUC (and also from the AFL-CIO over the Pond) that wages have been growing more slowly than productivity in recent years. And that this is the real, underlying, cause of our economic woes.

Hmm.

German wages grew more slowly than productivity over the last decade, helped along by Gerhard Schröder\’s labor reforms in 2003-05. This meant Germans consumed vastly less than they produced, fueling an export boom and keeping unemployment low.

Does Germany have different laws of economics then?

7 comments on “A small note for the TUC

  1. Germany was only able to do that because the majority of its exports went to Eurozone countries that were doing the polar opposite. Germany enabled the Southern European countries to buy its exports with extensive cross-border lending by German banks – which were then bailed out by means of “sovereign bailouts” in the countries to which they had lent. I think they call this “beggar-my- neighbour”.

    I should add that the German bias of European monetary policy over the last decade was also a considerable driver of German export success.

  2. Not sure Mr Coppola is completely right, Germany exports vast amounts of machine tools, luxury cars and so on to China and the USA. Admittedly that would also be helped if you view the euro as a means of weakening the Deutschmark,

    I guess the TUC’s argument is that wages would fructify in the pockets of the workers increasing demand and so on. And it is the case that the higher relative increase of return to capital over labour has resulted in major asset price bubbles, so the TUC might actually be on to something.

    I also note it’s a good thing if Germany has managed to control labour costs. The southern eurozone could have done the same thing and we’d have less of an imbalance to sort out now.

  3. Germany was only able to do this because it was exporting principally to other Eurozone countries. Monetary policy in the Eurozone has always benefited Germany at the expense of others – particularly undervaluing of the Euro relative to where the Deutschmark would have been, which obviously benefits German exporters. German banks lent huge amounts of money to Southern European countries to enable them to buy German exports, and were then bailed out by means of “sovereign bailouts” in the countries concerned: nearly all of the “Greek aid” actually went to German and French banks.

    German policy of screwing down domestic demand and relying on exports to generate economic growth only works as long as other countries in the EU are willing to be net importers (since Germany’s principal trade partners are still other EU countries). As other EU countries are reducing net imports, Germany’s export-led policy is in considerable danger: it is becoming increasingly reliant on exports to emerging markets. It is not possible for all countries to be net exporters – but for some reason the German ringmasters don’t seem to understand this (or perhaps they don’t want to). Perhaps you would care to write about this some time, Tim?

  4. “German wages grew more slowly than productivity over the last decade…This meant Germans consumed vastly less than they produced, fueling an export boom and keeping unemployment low.”

    I don’t see this as an unqualified success. Consumption is the point of exports as you rightly say. The Greeks have got Mercs, and the Germans have got Greek bonds. Bargain. Italy should go back to the lira (incl their debt), just for the expression on German bankers’ faces

  5. I thought my first comment had failed to post, hence second comment on same subject. Apologies.

    Richard – well spotted. I should have said EU not Eurozone, of course. About 60% of Germany’s exports go to the EU, of which about 40% are to the Eurozone (those figures may be a bit lower now).

    James – Germany’s exports outside the EU are considerably lower than its intra-EU exports. Would you also please note that the “e” in “Frances” denotes feminine gender.

  6. Frances is absolutely right. Martin Wolf once said, Germany can only be Germany while the rest of Europe isn’t. The current German idea that the peripheral eurozone states should be more like them is simply barking. The whole of Europe can’t rely on an export driven recovery. To whom are they suppose to export to? Neither the US nor China could absorb those levels of imports and the rest of the world pretty much doesn’t count.

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