Is Germany the weak link that could cause the collapse of the euro zone?

Will Germany be the weak link that could lead to the collapse of the euro zone?

Will Germany be the weak link that could lead to the collapse of the euro zone?

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

Atlantico: For the first time in years, Germany recorded a trade deficit in May and saw its surplus increasingly melt away. To what extent is this a sign of the deterioration of the more structural conditions of the German economy highlighted by the current crisis?

Remi Bourgeot: The German trade surplus has been moving from the middle of 2000 in an unusual way, with a surplus of the current account that has almost continuously exceeded, from the beginning of the 2010s, 7% of GDP. Beyond a historical tendency to export too much, this commercial performance was motivated by a political as well as an economic strategy to squeeze out wage costs in the reforms of 2000. This approach was accompanied by a compression of energy costs through the development of Russian. gas imports, at the expense of diversification strategies in the south, which are largely abandoned or reduced to fragmented projects, which are not comparable to the northern route. With Nord Stream 1 then 2, the country will have access to a supply that exceeds national needs and will be the nerve center of the European gas system, by re-exporting its direct import of Russian gas , thanks to a wide range of storage and distribution. system.

The current energy crisis has seriously disrupted this economic model. Behind the current figures of consumer price inflation of almost 8%, the surge in energy prices, in the order of 100%, pushed up production prices, which rose by 37% in a year. . This is a radical change in economic conditions that calls into question its position in the industry. And even beyond the question of prices, it is the prospect of energy rationing that raises the greatest fear of a destabilization of industrial production, which will be added to the long list of deficiencies already experienced by European industry. . .

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Faced with the current situation, coupled with the 75 basis point rate hike by the ECB, could Germany be the weak link that could cause the collapse of the euro zone?

A distinction must be made between the developing economic crisis, in which Germany is at its center, and the threats to the architecture of the euro zone, which repeatedly focuses on the countries most sensitive to rate increases.

The constitution of a large trade surplus was the heart of the German growth strategy, especially to reduce unemployment in 2000. Then, with the euro crisis, this strategy of cost reduction suddenly imposed itself to the so-called peripheral countries, which for the most part embraced it without restriction, such as Spain in particular. The trade surplus became central to Europe’s economic strategy, as fragile as the resulting growth. This strategy is mainly based on the reduction of wages (and energy) costs more than the gains in productivity and the development of cutting skills. This is the main flaw in this method. Europe now finds itself behind on many fronts of the ongoing industrial revolution and remains in an uncomfortable position to observe many areas of impending technological warfare, as demonstrated by electronics and the answer to the shortcomings of semiconductors in particular.

The change in the trade position of the euro zone with the appearance of a deficit that continues to expand, largely stimulated by the decline of the German surplus, shakes the strategy where almost everyone in the euro zone to avoid disintegration of ten. years ago. Regarding the architecture of the euro zone from the point of view of debt markets in particular, Germany, with its low public debt and its giant trade surplus accumulated over thirty years, does not ask the question such as the financial integrity of the euro zone from the point of view of market pressures on rates. In these markets, it is the countries whose very high debt needs low rates to refinance, which find themselves in a very difficult situation. And there is no simplistic solution offered to them to get out of it at this time, whether it is a monetary flood of the central bank (whose arsenal has been neutralized by the challenge of fighting inflation) or a general cost-cutting.

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Can Germany reverse the trend, economically and politically?

It is now necessary to operate an economic revolution to lose focus, easily, at low cost, whether energy or wages. The compression of energy costs has developed on the basis of a rejection of the goal of energy diversification, which has been exacerbated by the rapid exit of Germany from nuclear power, which has made it more dependent. As for the compression of labor costs, it has always been pursued at the expense of innovation and the grain of productivity, which has led to a headlong rush to move technology away from the continent. In the German case, this approach is based on an excessive insistence on the effects of the brand and prestige associated with a “made in Germany” which nevertheless loses part of its industrial meaning, as about of the breaking of chains. of production rather than the reality of technological content. From electric vehicles to electronics, Germany and Europe think they can rely too much on the advantageous positions inherited from the past without sufficiently projecting themselves into technology. The situation is particularly worrying in Western Europe as a whole. The strategy of extreme geographic optimization led to a relegation of scientific and technical skills in favor of a focus on managerial aspects and services that are often less tangible, while Central and Eastern Europe became the breeding ground for technical skills, and especially in mathematics. , on the continent. Advanced artificial intelligence centers are opening more quickly in Romania today, thanks to the low costs of course, but also and above all because we did not stop teaching mathematics there according to advanced conceptual standards, which was before known as “French Style” …

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