Britain could soon be Europe's sick man again - Europe shifts - Franco-German axis set to split

Daily Telegraph (London) ^ | 05/09/2005 | Ambrose Evans-Pritchard

[OESY]

Barely noticed, Germany has overtaken America to become the world's biggest single exporter, shipping the hardware that powers the rising economies of Asia and eastern Europe. Its trade surplus is now greater than that of China, Japan and India combined, reaching a staggering 16.8 billion euros in June alone. The profits made by German companies are running at over 33 per cent of national income, the highest in 40 years.

Eyeing a bargain, the world's canniest are already piling into German assets for the great Teutonic rebound. George Soros and fellow hedge funders are snapping up distressed banks. Britain's Terra Firma has bought 150,000 workers' flats in the rust-bowl around Essen, hoping to catch the new craze for home ownership.

Foreigners poured £47 billion into German equities in May and June alone, says the Bundesbank. Yes, there are 4.8 million unemployed. There were still three million unemployed well after Britain had pulled out of its 1970s nosedive. Jobs are the last of the lagging indicators.

Deutschland AG has knuckled down. Now it is up to the German state. In two weeks, Germans are likely to close the book on seven years of half-measures - though half is better than none - by the Social Democrat Gerhard Schröder. Berlin will fall to Angela Merkel, the shy physicist who grew up under Communism as the daughter of a Lutheran pastor, a "non-person", learning young how to question the system. Those who assumed she would play safe are having to think again.

Her putative finance minister, Paul Kirchoff, wants a 25 per cent flat tax and calls for the abolition of 90,000 tax rules. "We will smash down the tax barriers, break the cycle of resignation. I'll be there myself on hand with a big sledge-hammer. We want to give the citizens back their freedom and let them decide for themselves what they want to do with their incomes," he said last month. For good measure, he wrote the landmark 1993 ruling on the Maastricht Treaty as a top constitutional judge, defying the primacy of EU law in the most piercing assertion of national sovereignty ever issued by the supreme court of an EU state.

Change is afoot. Gordon Brown might pause next time he goes to Brussels to lecture fellow ministers on their failures. Germany, Holland, Denmark, Sweden, Austria, Belgium and Spain - not to mention the flat-tax fire-breathers Poland, Slovakia and the Baltics - have all starved the public sector over the past decade, while Britain swells ever fatter. Our state will take 45 per cent of GDP by 2006, against 46 per cent for Germany, on OECD data. It does not take much extrapolation to see that Britain could soon be Europe's sick man again, gasping and choking with the worst of the big-government sclerotics.

Indeed, with France. Give them their due, the French are still defending the citadel defiantly. The state sector remains 54 per cent of GDP. Jacques Chirac, leading his nation ever deeper into reactionary folly, is drawing up lists of strategic sectors to be defended against capitalist predators - EU rules be damned. His latest prime minister, Dominique de Villepin, hagiographer of Napoleon, has taken to ruling France by decree. And what is he doing with this riskily grasped power, beyond charging about with near maniacal energy and exhorting les citoyens to work harder? He wants to spend a further £7 billion on big works. The French remain attached to their modèle sociale, he said. It cannot be touched. How long will it be before the ruling class summons the courage to tell France that this sacred model is bust?

It was fitting that a French judge this month should have ordered Nestlé to reopen a factory in Marseilles, closed in June after losing money for eight years. The 427 workers had been given a year's notice. Nestlé complied with every clause of the Byzantine labour laws. Not good enough. The judge nailed Nestlé for plotting "delocalisation" to cheaper plants abroad. Like the Second Empire, before the Prussian defeat at Sedan, France seems rigidly set in its ways. Its cuisine has become formulaic - unhealthy and too slow, suited to public servants on a 35-hour working week - while its red wines have been left behind by high-tech vintners of the New World.

It is hard to see how the EU's Franco-German axis can survive as the two wheels begin to spin apart. German unit labour costs in manufacturing have fallen by 4.4 per cent over the past year alone. Each year for a decade, the country has clawed back competitiveness with higher productivity against other euro-zone economies. The single currency, which so punished Germany at first, will soon work to its advantage - with ominous effects. Its firms are already sweeping southern Europe like conquering Goths. A senior economist at the European Commission told me that German success would ultimately break the euro itself, starting with the ejection of Italy. But France may not be spared either.

I am not sure that Britain's debate on Europe has quite caught up with fast-moving events on the ground. We love to hate the Franco-German axis, but it did deliver the stabilising compromises that held the EU's north and south together. The task of holding Europe together may now fall to Britain, since no other EU state can possibly do it. Or Britain could opt for the entirely different strategy of Anglo-German condominium, creating a fresh EU axis, this time run on free-trading, pro-American lines - and let the Latin chips fall where they may. Unwise perhaps, but very tempting.

[stylin19a]

Her putative finance minister, Paul Kirchoff, wants a 25 per cent flat tax and calls for the abolition of 90,000 tax rules. "We will smash down the tax barriers, break the cycle of resignation. I'll be there myself on hand with a big sledge-hammer. We want to give the citizens back their freedom and let them decide for themselves what they want to do with their incomes," he said last month. For good measure, he wrote the landmark 1993 ruling on the Maastricht Treaty as a top constitutional judge, defying the primacy of EU law in the most piercing assertion of national sovereignty ever issued by the supreme court of an EU state.

Hope OUR guys are watchin this.

[satchmodog9]

I wonder if you remove all the cars from the trade imbalance, what it would be. How many cars do you think Germany imports? Just a question.

[Betaille]

"Germany has overtaken America to become the world's biggest single exporter"

And they've been in recession for 10 years with unemployment above 12%. This is the mercantilist fallacy at work "Exports good, Imports bad".

[seppel]

You must be dreaming.

Schröder has managed to trick the majority again and will come through in the last minute. Theatrics, lies and appeals on the gut level. Most Germans decide through their bellies, not their brains.

Germany is structurally socialist. When "conservatives" govern, it is an anomaly.

The economy will keep going south as Germans become ever more godless.

Remember. Many companies manufacture in Eastern Europe and Asia, and their head offices in Germany report the numbers here.

[aft_lizard]

Are they figuring in export trade amongst EU nations?

[denydenydeny]

Her putative finance minister, Paul Kirchoff, wants a 25 per cent flat tax and calls for the abolition of 90,000 tax rules. "We will smash down the tax barriers, break the cycle of resignation. I'll be there myself on hand with a big sledge-hammer. We want to give the citizens back their freedom and let them decide for themselves what they want to do with their incomes," he said last month....not to mention the flat-tax fire-breathers Poland, Slovakia and the Baltics

I wonder if the John Kerrys of the world will continue to demand that we emulate our European brethren?

[cynicom]

If the world economy sneezes because of oil, Germany will have walking pneumonia.

[Lessismore]

If the world economy sneezes because of oil, Germany will have walking pneumonia.

Not a chance. This time they will do whatever deal with the Russians, Ukraines, etc. is needed to get Caspian Basin oil. Maybe even with the Turks to get Iranian oil.

[manx]

From the CIA fact book:

Germany's affluent and technologically powerful economy - the fifth largest in the world - has become one of the slowest growing economies in the euro zone. A quick turnaround is not in the offing in the foreseeable future. Growth in 2001-03 fell short of 1%, rising to 1.7% in 2004. Germany's aging population, combined with high unemployment, has pushed social security outlays to a level exceeding contributions from workers. Structural rigidities in the labor market - including strict regulations on laying off workers and the setting of wages on a national basis - have made unemployment a chronic problem.

[ClaudiusI]

One europe, one economy, one leader?

[.cnI redruM]

>>>>>"We will smash down the tax barriers, break the cycle of resignation. I'll be there myself on hand with a big sledge-hammer. We want to give the citizens back their freedom and let them decide for themselves what they want to do with their incomes,"


Sounds like what I wish the US government would do. I understand Bill Thomas has a tax bill along similar lines that's being bottled up in committee.

[snowsislander]

Barely noticed, Germany has overtaken America to become the world's biggest single exporter, shipping the hardware that powers the rising economies of Asia and eastern Europe.

I looked at this a while ago when I first noticed that Germany was leading the league. If memory serves, Germany is indeed the world's largest exporter of goods by dollar value, but that's because the dollar is so weak compared to the euro. Were the exchange rate to go from the current US$1.24 to buy one euro to, say, $0.90 to buy one euro, then Germany's exports by dollar value would not look so strong.

However, China is a real contender. Their exports of goods are growing very rapidly indeed; in just the first six months of this year, China is reporting that they have already exported $342 billion worth of goods -- and the second half of the year is their strong season. That is, I believe, a 32.7% increase year-on-year for the same period from 2004.

Unit: US$100,000,000
	Jun.		Jan.-Jun.
	Absolute Value	Increase ±%	Absolute Value	Increase ±%
Total Import and Export	1,222.4	23.0	6,450.3	23.2
Total Export	659.6	30.6	3,423.4	32.7
Total Import	562.8	15.1	3,026.9	14.0
Import and Export Balance (Surplus is +; deficit is-)	96.8	497.5	396.5	--

 

(Source: Network Center of MOFCOM) (URL = http://english.mofcom.gov.cn/aarticle/statistic/ie/200508/20050800326088.html)

[Old Seadog]

Angela Merkel

[Owl558]

"The profits made by German companies are running at over 33 per cent of national income, the highest in 40 years."

These German companies, they are like locusts...

[/sarcasm]

[Grampa Dave]

If Angela Merkel replaces the socialists in charge of Germany, then we will be investing in Germany.

There is an easy way to do this:


iShares MSCI Germany Index (EWG)

Until then we will stick with the ishares MSCI Austria Index (EWO).

Below is a link to a 5 year comparison chart between EWO (Austria index) and EWG (German Index).

http://finance.yahoo.com/q/bc?s=EWO&t=5y&l=on&z=m&q=l&c=EWG

[CzarNicky]

just an anecdotal observation but I work as an importer and the sheer volume of goods imported from Germany and the other EU states dwarfs that of China. It's not just cars that we import from them it is machine parts and capital goods, what do we get from China? skateboard parts.

[satchmodog9]

and crappy trinkets

[Mike Darancette]

This time they will do whatever deal with the Russians

I thought that Russia is busily building pipelines to China.

[Mike Darancette]

This time they will do whatever deal with the Russians

I thought that Russia is busily building pipelines to China.