The Rest of Europe vs. Germany

Excerpt from an article in The New York Times

I am a little confused by the statement: "its (Germany's) currency is undervalued".  Germany uses the Euro, just like many of the other European countries, including the ones that are in trouble.  But the German economy is well-managed.  No doubt about that.

Friday, February 17, 2012

The Rest of Europe vs. Germany 

By FLOYD NORRIS

The German economy has been one of the wonders of the world over the last couple of years. While the rest of Europe staggered, German unemployment fell to the lowest level in decades.

This week the Organization for Economic Cooperation and Development, the club of developed economies around the world, issued a new “Economic Survey of Germany.” The biggest challenge it could find facing the country was finding enough workers.

It recommended steps to encourage more women to work.

“Please accept our sincere congratulations for a well-managed economy,” said Angel Gurría, the O.E.C.D.’s secretary general, in a speech in Berlin. The country’s “growth model has been so successful in navigating through the stormy waters of the crisis.”

The German labor system, with its incentives to move workers to part time rather than lay them off, does appear to have been critical in keeping the country’s unemployment rate from rising more than it did during the credit crisis.

But the decline of unemployment since then has more to do with the fact that Germany — perhaps unintentionally but certainly effectively — has managed to assure that its currency is undervalued, both relative to that of its neighbors and to much of the rest of the world. That has helped the country’s exporters and brought more business to the country.

In the Great Depression, many countries tried devaluations to gain export advantages over rivals. The strategy became known as “beggar thy neighbor.” It generally failed to work because other countries responded with their own devaluations.

Now some of Germany’s neighbors have been reduced to begging. They cannot take a page from the Depression playbook and devalue their own currency. They no longer have one.