Germany reaps benefits from policy designed to help stimulate Europe’s lagging economies

Anna Sonny, 10 April 2015

Germany’s exports, imports and trade surplus all reached an all-time high last year.

The country’s strong inclination towards balancing the books on government expenditure meant that they were reluctant to introduce quantitative easing this year for the Eurozone, a Keynesian-type stimulus package intended to boost demand and growth across Europe.

But the depreciated euro, (the pound is currently trading at €1.38) has led to increased demand for German exports.

While the danger of an increase in exports and a low-value currency is always that imported foreign goods are more expensive, the fall in oil prices and the rise in real wages means that Germans have more disposable income to afford these.

The ECB’s bond-buying programme is currently boosting the euro area, lowering borrowing rates even further, and causing Eurozone growth forecasts to be revised upwards. The Eurozone’s recovery is finally picking up pace but the ECB’s programme will only last for a limited amount of time and oil prices won’t be this low forever; we are yet to see how the Eurozone will fare once these favourable conditions are removed.

Meanwhile, Greece, having now made its €450m debt repayment to the IMF, is struggling to bring its economic reforms into line before the deadline later this month, necessary for another loan. The contrast of Germany’s economic performance with that of Greece is a prime example of asymmetric shocks – how economies in a shared currency area are affected in diverse ways by economic events, and why one-size-fits-all fiscal policy fails to suit every economy.

The austerity policy championed by Germany after the financial crisis led to cuts in borrowing and spending, decreased demand and rocketing levels of unemployment in Greece (unemployment is still over 25%). And now, the ECB’s quantitative easing programme won’t buy Greek bonds because its bailout review is not complete and its credit rating is too low.

While Greece’s return from the programme will be limited, Germany, the economic powerhouse of Europe, will continue to reap the benefits from policies designed to stimulate the European economies that need it most.