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Field trip to Germany (12.10): The new fault line in Europe connects to Berlin.

Berlin, 15-21 December. 

Checkpoint Charlie is now just a dot on tourist maps.  The Berlin wall, long a symbol of the cold war, rests in the minds of the older generation. Since its fall, some 20 years ago, Berlin has embraced modernity in art, architecture, politics and economics.

The German economic model has particularly impressed.  From 1990 to 2000 the country was able to absorb a sudden reunification, then both a meaningful fiscal shock to the nation and a competitive shock for German enterprises.  The next period of 2000 to 2010 also bore challenges:  The international rise of China and India, coupled with a particularly nasty financial crisis.  Yet at the close of 2010, in the midst of a shaky Euro, Germany stands in pretty good shape.  It is coming out as one of the winners in the rise of Asia, and a strong survivor of this financial crisis.     

The German export machine, the world’s second largest, is romping along nicely, accounting for about 55% of the total Euro zone exports. The trade balance, at around +210 $bn, sustains a current account surplus of +5% of GDP.  Growth in GDP should hit 3.5% in 2010 and a slower 2.0-2.5% in 2011.  Unemployment stands around 7.5%, high enough for grumbles, but far lower than the socially-shaking 20% found in Spain. Government debt is at 80% of GDP, slightly lower than Europe’s average at 83%.  The German business model of consensus, wage discipline, high product quality and steady determination has worked wonders in the last 20 years.

Success used to translate into a stronger Deutsch Mark. Today, success means as well being pinned down to the fault line in the Euro zone: Stress in the banking systems and excessive government debts shaking confidence in the Euro.  The rest of Europe needs today, more than ever, a strong German economy; so the German banking system needs to pass through the forthcoming debt restructuring in decent shape.  Germany needs a surviving Euro, otherwise they will be dragged down in the flames as well.  Inevitably, one way or the other, the fault line reaches Berlin.  Yet it is somehow comforting to see Germany in the driver’s seat:  We know full well that the option of muddling through will only be tolerated for just a while; and that any form of fiscal integration or reform in the monetary union will require flexible consensus and determination; two qualities akin to modern Germans. 

As the events roll out in 2011, what are we to find out: A more European Germany or a more German Europe?

Andre Du Sault

Posted in Country visits, World economy.

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  1. Jaelyn says

    You’ve got it in one. Cluodn’t have put it better.

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