The German Way

14th January 2009 - The German way

Originally this diary referred to the approach of the German state to the credit crunch crisis as maverick in that it refused to tow the fiscal stimulus line set by the US and the UK. Then, as exports were hit with the consequential drag on GDP, a recant was evident as Germany appeared about to follow-my-leader. Looking more closely at what is actually being done shows a different and more cautious approach. The German proposals have been costed at 50bn euros over two years but is founded on a tight fiscal track record and a huge trade surplus. The final outcome could be a deficit of 2% of GDP compared to more like 8% in the US and the UK. The actions include tax and health insurance reductions, more infrastructure spending, a 2,500 euros incentive to encourage people to trade in old vehicles for new low-emissions models and a payment of 100 euros per child. It seems the Germans believe in carrots.

Meanwhile, the UK trade deficit widened to £8.3bn in November 08, the highest level since records began in 1697. In theory, exports were supposed to pick-up with the fall in the relative value of the pound. Instead they fell by 6% mainly due to lower sales to non European Union countries.

But there is always a silver lining. The French and the Belgians are arriving in London in droves with their powerful euros to sweep up our cheap goods and best of all, the Eurostar has never had it so good.