Larry Elliott of the Guardian Newspaper wrote a good article on the German economy stating that whilst a lot major developed nations like the UK and the USA focused on financial markets, Germany continued to do what it does best – manufacturing and the idea of making stuff. There are a few reasons why the German economy has performed so well of late:
1. Government wage subsidies allowed firms to keep their talented labour force employed on a part-time basis. This meant that the firm could take advantage of more bouyant market conditions and not have to re-employ staff.
2. Falling unemployment has led to higher wages which has boosted domestic demand.
3. Wealth is spread across the country with none of the excessive concentration of affluence in one area like that of the UK.
4. The German investor didn’t put too much of their resources into real estate like that of the US and UK. Germany benefits from an old fashoned structure – a prudent investor.
5. It is not uncommon for a German company to have an 80% share with a particular piece equipment and, even despite higher labour costs, demand seems to remain strong.
6. With the recent financial crisis the majority of investment has stayed in Germany and this has led them to be very competitive in world markets.
7. China has been a very favourable location for Germany’s exports. With a growing middle class in China there is a huge increase in demand for cars especially.
8. Interesting to note that the fixation with property in Germany is not as prevalent in the UK and the USA. In Germany approximately 60% of the population rent.
If you have read John Lancaster’s book “Whoops” you will find out that by June 2008, the International Swaps and Derivatives Association estimated the total size of the market as $54 trillion which is close to the GDP of the planet. The problem was that these Collateral Debt Swaps (CDSs) and related financial instruments had been around and sold from bank to bank in an entirely untransparent way, in a gigantic game of pass-the-parcel. It’s as if people used the invention of seatbelts as an opportunity to take up drunk-driving.