Trade Surpluses and German Economic Nationalism

Sone readers might be interested in this excellent blog post by Thomas Piketty on the alleged asymmetry between Germany and France.

The core takeaway is that both countries have similar levels of productivity – measured in terms of GDP per hour worked.

The difference between Germany and France is that they use their high-levels of productivity in very different ways. France consumes and invests what it produces. Germany sells it abroad.

The excessive and persistent trade surpluses in Germany (outside small oil producing states and tax havens) “are unprecedented in economic history”. Europe has a German problem.

Labour productivity (GDP per hour worked) 1970-2015

Domestic consumption and investment in % of GDP (1970-2015)


By Aidan Regan

I'm an Assistant Professor at the School of Politics and International Relations, University College Dublin (UCD), and Director of the Dublin European Research Institute (DEI). My research is primarily focused on comparative and international political economy.

15 replies on “Trade Surpluses and German Economic Nationalism”

Could France with its higher birthrate have a more balanced population distribution and so more balanced consumption?

Yes, it’s a fascinating puzzle.

There is plenty of research on the compatibility (or not) of institutionally diverse political economies in the Eurozone (a question that is central to the study of comparative politics):

But the question as to why some countries under-consume on such a large scale as Germany is certainly a puzzle. I think the answer certainly is related to culture but economic institutions embody, shape and embed these ideas.

The biggest net job creators in the G7 in 2010-2016 have been the US 56%; Germany 15.5%; UK 12%, followed by Japan 7%; Canada 5%; France 4% and Italy 0.9% (rounding).

Productivity can give a weird result and then it cannot measure some improvements.

GDP per hour worked, with a base of 100 in 2010, US added 1.6 by 2015; UK 1.4; Spain 6.2; France 4.3 and Germany 4.7, according to the OECD.

France did well in productivity but was second worst for job creation.

Germany has low investment and the business sector is not likely to ramp up investment until the global trade situation becomes clearer.

France’s public spending is at 57% of GDP — about 11% above Germany’s and the UK’s but France’s investment level is in line with the EU average. Current spending was at 52% of GDP in 2014.

Social benefits in 2014 accounted for 26% in France; 24% in Germany; 21% in Italy and 15% in the UK.

The IMF says:

In contrast with Germany and the United Kingdom (but not Italy), the poverty rate is much higher for children than for the elderly and this gap has been widening during the crisis. France is also poorly positioned in the OECD index on child well-being relative to comparators, particularly for health and safety, and quality of school life (OECD, 2009). Problems of inequalities and poverty are particularly prevalent in poor urban areas, despite significant public spending and support.

Countries differ in what they produce and it’s necessary to understand the differences between the two economies.

There are several indicators showing that Germans are more risk averse than other nations and France hasn’t had a budget surplus any year since 1974.

As for economic nationalism, France forced Germany to adopt the euro and economists need to drill down beyond macro data.

Germany has posted a goods trade surplus every year since 1952 — just 3 years after the founding of the Bonn republic. All through the 1950s the UK could only manage deficits. As far back as the 1870s the Brits were worried about German import competition.

German pay has risen 14% since 2007 and manufacturing pay is the highest in the world. Companies are better at innovation than US counterparts; German companies provide the shop floor machinery for the developed world and 1,500 of the SME firms are global leaders in their niche areas e.g. champagne corks!

German companies can focus on the long-run as few rely on stock exchange listings.

Germany also has Fraunhofer-Gesellschaft, the leading organization for applied research in Europe. Its research activities are conducted by 67 institutes and research units at locations throughout Germany. The Fraunhofer-Gesellschaft employs a staff of 24,000, who work with an annual research budget totaling more than €2.1bn. Of this sum, more than €1.8bn is generated through contract research.

France has about 120,000 exporters; Germany has about 340,000.

Germany has the skills training, innovation system, business structure with a large number of big firms and a large number of specialised small firms, and product range in demand by growing economies.

German export growth has been low in recent years but increasing investment is not going to help France.

Germany a beacon of stability has “never had it so good”

Excellent points Michael.

“France did well in productivity but was second worst for job creation”.

Piketty touches on this in the article. It’s the real public policy problem in France (and southern Europe): how to maintain the social state, funded by high-productivity, whilst improving labour market access for young people. He cites the training system in Germany. But It’s pretty difficult to mirror the German vocational educational regime, which is, itself, under huge strain.

“Germany has the skills training, innovation system, business structure with a large number of big firms and a large number of specialised small firms, and product range in demand by growing economies”.

Spot on.

The Germans don’t tend to ponce around. They don’t regard educating large numbers people in tricky skills that are demonstrably required as inferior to educating large numbers of people in tricky skills that can be argued to be luxuries.

In unrelated news, Ireland has a high drop-out rate from third level education, a projected requirement to build 25 – 50 K housing units per year, and literally a handful of qualifying apprentices for the industry per year. This might not be optimal.

It’s a bit of a conundrum in economic terms but not if one compares the two countries in terms of history and geography. Germany is an industrial powerhouse because there was no other route open to it post-war in a truncated territory and one deliberately organised by the Allies to weaken the power of the federal government. The result is much less centralisation and more balanced regional development (until reunification).

The stand-off between the policymakers in the two countries continues. And there is no sign of it ending short of France doing what it needs to do i.e. getting public expenditure under control and scrapping employment restrictions, including the 35 hour week.

Commentators have amused themselves over the years with images of the growth in the Code de Travail. If regulation created jobs, France would be a world leader.

Conclusion; France is France and Germany is Germany.

As do 17 other countries. The point that I am making is that the reforms necessary to enable an economy to cope with the disciplines required by membership of a common currency area, or whatever one wants to call it, CANNOT be brought about OTHER than at a national level. This is the German position and they will not move from it, not least because they have learned the hard way.


You have many valuable insights, particularly in relation to the dynamics of the EU, but, with respect, you lack insight into the credit and financial sectors, without which no understanding of a modern economy is possible. Keynes has not gone away.

Structural reforms are important but ihis is only part of the story, and block capitals do not an argument make. Adversity can teach people to be rigid and fixated too.


@ PQ Thanks for the link. I will add it to the list of – premature – obituaries for the euro having glanced quickly through the chapter headings. On the use of block capitals, I agree that the use of them should be sparing but they can help to summarise an argument, in this instance that the facts as outlined, at least in my view, are immutable short of causing not just the euro but the EU to collapse. The comment was prompted by the report that Macron proposed the creation of “a eurozone budget to finance growth-oriented investments and to extend financial assistance to struggling member states”. He also referred to the lack of trust between France and Germany. But it is France that is refusing to get the message i.e. that what they have signed up to is a common currency, not a transfer union. It may be that, on Macron’s record to date, and his rising status in the polls, that he is saying this for the gallery and that a majority may be emerging in France for the view that the country simply cannot continue living beyond its means (something the hitherto favoured candidate, Fillon, pointed out when he was PM).

Inviting Germany to stump up more money when it already has a very large public debt and facing even bigger budgetary demands in the context of Brexit, Macron must know this. Which is not a great augury were he to become president.

Slightly off-topic here, but exchange rates are involved. Rather hilariously, it suggests FX is just too difficult for some people.

“Prof Barnard added: “In respect of those who have declined an offer from Cambridge at postgraduate level, we have put a question in the so-called decliners survey to say ‘what was it that dissuaded you from coming?’

“Those who answered the question offered a range of factors from a concern about anti-immigrant sentiment to devaluation of the pound and the fact that their scholarships would be worth less, although obviously not in the UK, and uncertainty over future research collaboration.”

The Economist this week has a story on how Adidas has brought some sport shoe production back to Germany — greater automation will likely be bad news for countries like China but even with robots, innovation can maintain some jobs in Europe.

Germany, France and Italy account for ratios of Euro Area GDP: 28%, 19% and 17%.

France is unlikely to bring down the euro; Italy had a GDP per capita of €26,000 in 1998, with 2010 as a base. It was €25,600 in 2015.

Italy has additional large black and criminal economies.

Even the populist Five Star Movement (M5S) party cannot escape corruption and last month party member who is the mayor of Rome, was stripped of the power to make “important decisions” after a close adviser was arrested for suspected corruption.

Comments are closed.