German Exports Lead Strong Recovery
Angela Merkel has once again proved her critics wrong as Germany surged ahead with an export led recovery ahead of other OECD nations. This turnaround in German economy came through a robust growth in manufacturing and prudent fiscal policies, ahead of Merkel’s plans to cut deficits by $10 billion each year in the next four years. Though Merkel's plan for reducing spending has been widely criticized by the US, France and other high debt economies that still keep pumping stimulus funds, there is no doubt that the strategy is working for Germany.
Germany today is still not among the top ten foreign exchange reserve holders, and perhaps realizes its vulnerability to the sharks of the investing world, the hedge funds and the Wall Street Banks who have been profiting immensely from short selling. After banning naked shorts of Government bonds and antagonizing investors like George Soros by its tight monetary policy, Merkel’s Germany had to perform strongly to stand up to the investor speculators who thrive on a borrowers misfortune by use of instruments such as credit default swaps. By reducing debt and growing its forex reserves Germany will be in the safe zone, out of reach of the punters who today are trying to control the global economy.
The Merkel strategy has placed Germany at the head of the global export chain with China and other European nations as its back end suppliers. Whereas Asian nations provide Germany low cost components in the electrical equipment segment, EU nations are its backbone in the automobile sector where Germany sells the world’s best selling luxury cars the BMW and the Mercedes Benz.
Germany has been building a low cost world class competitive manufacturing base by relinquishing its hold on component supplies and concentrating on design, assembly, quality control and marketing. Trade with its supplier nations has gone up by leaps and bounds with China being the biggest beneficiary, the two manufacturing giants doing business worth $105 billion last year. Germany’s exports to China rose by 7% last year against an overall decline of 18% due to the worldwide recession, and it became the only OECD nation to have a trade surplus with the world’s largest exporter.Continued on the next page