Germany Keeping Euro Low To Boost Exports?

oped_300On Twitter, Max Keiser was asserting that Germany was suppressing the value of the Euro by having Greece in the Eurozone. –

Let us see if the facts support his argument.

Max Keiser points out a graph showing Germany’s trade surplus on his twitter account saying “Why Germany loves a weak and feeble Greece”keiser-germay-surplus

We went back and forth, the last comment from Keiser being,

“Greeks subsidising Germans” >>> transcript included below

In summary Keiser believes Germany is suppressing the value of the Euro by having Greece in the Eurozone

But what does the data say?

I found this article attacking Germany for the same reasons. Long and the short is that Germany is suppressing internal wages to gain competitive advantage.

However this same article says this

“Moreover, an economy with a big trade surplus tends to experience currency appreciation because demand for its currency outstrips the supply of it”

So in the long run, the currency in the surplus country will appreciate, reducing/eliminating its advantage

Let us see if Germany has been suppressing the value of the Euro vs the Dollar and GBP

USD vs Euro – Euro has appreciated by around 20% since 2005 (excluding the last 12 months) –

GBP vs Euro – Euro has appreciated around 12% since 2005 (excluding the last 12 months)

In short the Euro has not been weak vs the Dollar and GBP, it has been strong.

(It should be noted that the Euro has weakened in the last year, probably due to the belief that The Fed/Bank of England are going to raise interest rates.)

Again, Keiser’s statement that the value of Euro has been suppressed do not show in the facts, at least from 2005 until 2014.

Let us look at Kesier’s argument from a Eurozone perspective.

Has Germany being suppressing the value of the Euro in Germany vs other countries in the Euro?

Yanis Varoufakis has a nice short and to-the-point article here –

Varoufakis suggests the Greece (among others) were funding Germany’s trade deficit with China, Japan, Norway.

This may be true.

But I wonder if Varoufakis would at the same time criticise Greece for having a trade surplus with some countries and a deficit with others?

Surely this is unavoidable in international trade?

It is not who you trade with that counts. The only thing that matters is that the country has a balanced trade account and if it can run a surplus, so be it.

Here is another article attacking Germany in the Telegraph here –

Pritchard lambasts Germany’s trade surplus as “out of control” and yet in the same article he says things such as

“Chronic surpluses are a way of stealing demand from elsewhere.” – which would increase prices in Germany, reducing the surplus

“The surpluses are being recycled into capital flows abroad with a negative rate of return, eroding the wealth base that the country will need over the next 10 years as it goes into precipitous demographic decline.” – So he lambastes Germany for a trade surplus and lambastes Germany again for sending the money out of Germany……..

“The sooner Germany abandons fiscal fetishism and invests its own money in its own country for its own good, the better it will be for everybody.” – Surely  it would be “better for everyone” if Germany invested that money abroad? In countries like Greece for example.

Contradictory comments are the inevitable outcome when you push an agenda instead of looking at the facts. The agenda seeming to be “Germany is bad”.

Mak Keiser is correct in one respect, the Euro is cheap in one country in the Eurozone. That country is Germany.

And this leads to one inevitable outcome, that by the day, Greece becomes more and more attractive to German manufacturers as a place to start a factory.

The German Euro can buy increasing amounts of labour in Greece and this will continue as long as Greece has a trade deficit.

However there are many stumbling blocks which stop  Greece from balancing its trade account with Germany.

The first is the level of taxation in Greece. Instead of keeping taxation levels the same, the Greek government has continually increased taxes on the Greek workforce from 2009, making labour essentially more expensive when it should be decreasing.

Labour reforms and social security reforms would make Greece more attractive to manufacturers and yet this is the one area where the Greek government has been next to immovable.

While pension cuts are pushed as the solution, the real problem is social security payments which add 50% to the cost of employing someone in Greece.

For small business owners in Greece, social security payments can have an effective tax rate of 70-80% on income because the bi-monthly payment is not a percentage of income but set according to the number of years in business.

These social security costs are massive and it is probably the key factor in stopping foreign firms investing in Greece.

euro_tradeYou can see from this graph that Greece trade deficit has been moving to balance with the rest of the EU since 2000.

The Euro has helped the Greek trade account massively. It has not weakened Greece.

This is exactly what you would expect.

You can only imagine how much faster Greece would be able to balance its trade account if taxes in Greece were not massively increasing since 2009 and instead kept at the same levels or reduced.

In Summary

People can argue all they want about the negatives of Germany’s trade surplus.

But the fact is, the more Euros there are in Germany the higher the prices in Germany and this includes labour and/or land and/or products.

Germany’s trade surplus will stop increasing at some point, stabilise and/or start to reduce.

The level where the the trade, balances, will be directly related to the restrictions and costs imposed on businesses, in countries that Germany trades with.

As the Euro becomes cheaper in Greece from a German point of view, the more attractive Greece will become for Germans to set up factories there.

Greece can increase the speed of the balancing by keeping taxes the same and reform the social security system.

And yet countries like Greece are doing the exact opposite by resisting social security reforms and by increasing taxes.

And despite the counter productive measures being taken by Greece, Greece’s trade account with the rest of Europe is coming into balance, one can only imagine where it would be if taxes were at 2007 levels and the pension reforms had been carried out.

In short, Max Keiser’s assertion that the Euro is cheap is not supported by the facts.

The facts actually show the exact opposite.

Since the introduction of the Euro in 2000, Germany’s trade account has remained more or less the same while in countries such as Greece and Portugal it has improved dramatically.

If the Greek government would simply stop resisting reforms to social security (ie reducing contributions for employees and connecting contributions to income, for small businesses) and take taxes back to 2007 levels, there is no reason to believe the Greek economy would have a trade surplus and the economy would be in full on recovery by now.


The OpEd Daily-Max Keiser Transcript from Twitter

The reason why Germany loves a weak, feeble Greece and will continue to damage it. (cheap Euro = high exports)

@maxkeiser come again? they want cheap euro? they are fighting to stop QE! this is the root cause of #GreekCrisis

@op_ed_daily FALSE. As long as Greece kept Euro cheap they did not need QE. Now they are expanding ECB aggressively in case of Grexit.

@maxkeiser “Greece kept Euro cheap” you mean Germany?

@op_ed_daily Having Greece in Euro kept Euro cheap – per Germany’s design to boost exports (now at record). Greeks subsidizing Germans.

@maxkeiser You have link to an article where I can read about this in more detail?

@op_ed_daily @maxkeiser Outside eu exports benefits from weak euro, inside eu exports benefited from hartz IV internal devaluation reforms


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