German export issue at the heart of EU crisis

Germany is often among the top two exporters in the world. Last year it slipped behind China, exporting a little more than $810 bln of goods and this is after a 14.5% decline. Germany exports around 40% of its GDP, which is roughly the same proportion as China.

In 2009, German exports to Greece, Spain, Portugal and Ireland, whose combined GDP is about $2.7 trillion, exceeded its exports to China and Japan, where the combined GDP is more than $9 trillion. And Italy, which also has debt and deficit issues, receives even more of Germany’s exports. The fiscal austerity that has already begun is not simply in the Mediterranean and Ireland, but many eastern and central European countries as well.

Austria and Belgium have high debt/GDP ratios (and their banks have the largest exposures to the Baltics). Taken together these euro-zone countries—Greece, Portugal, Spain, Ireland, Italy, Austria and Belgium absorb a full quarter of Germany’s exports.

Marc Chandler Brown Brothers

There is an imbalance problem that will have to be solved for the EU to get back to a balanced economy. Unfortunately, it requires a change in German behavior to increase consumption and the other debt-ridden EU members cut consumption.