Fact and Fancy: Germany’s Position at Labour Unit Costs, Extra-Trade and Real Effective Exchange Rates - What tells the Statistic?

Abstract

The paper studies the development of labour unit costs, extra-trade of EU27-member countries and the development of the real effective exchange rates. Germany is often accused to have benefited most from the creation of the Eurozone and the common market. In particular the development of labour unit costs which was more moderate than in some other member countries of the Eurozone is considered to be a key factor that Germany has used its increasing competitiveness in wage costs to increase their market share inside the common currency area. However, the real labour unit costs do not show any long-term trend of deviation inside the EU27. Another view at the statistics on extra-trade of the EU27-member countries of Eurostat, however, reveals that the key driver for the different performance of the EU27 and the Eurozone member countries is that the external trade development attributable to globalization. The better countries of the EU27 adjusted to this challenge the better their export performance. Intra-trade is diminishing relatively to ex-trade of the EU27. Last but not least. The data for the real effective exchange rates calculated by the BIS reveal that Germany’s exchange rate remained fairly stable during the last decade. The problem emerging for some other countries of the Eurozone and the EU27 has been the gradual erosion of their competitive advantage measured by the real effective exchange rate. From these results the claim that Germany is the cause and key driver for the current problems of the other member countries is exaggerated. Policy failures committed elsewhere do not justify this assignment of responsibility to Germany. Instead Germany has been a stabilizing factor to compensate for weaknesses elsewhere. The real success story of German trade surpluses came from a better utilization of the opportunities of globalization. With positive spill-over effects to other member countries of the Eurozone through higher import demand the German economy created positive demand effects. This should not refute the fact that Germany has a significant trade surplus opposite to countries inside the Eurozone. It just claims that these have not expanded relative to the overall export performance of Germany.