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Role model

October 23, 2010

The German economy used to be criticized for being overregulated and unflexible. But in the wake of the global crisis, it's Germany that's emerging with ease, which countries like the US can learn from.

Positive graph
Germany's economy has recovered based on its exportsImage: Fotolia/Kit Wai Chan

Unemployment figures in Germany are down to 1992 levels, and German exports are on the rise as if the global economic crisis had never happened. In comparison, the economy in the United States is doing a lot worse: unemployment stands high at 9.6 percent, and growth rates are far from the positive figures that are coming out of Germany.

And yet, there's no secret recipe behind the success of the German economy, says Thomas Zielke, deputy delegate of the German economy in Washington – it all comes down to exports, he told Deutsche Welle.

"It's that great flexibility of companies, and the will to expand. People are simply used to focusing on exports," Zielke said.

Robert Shapiro
Shapiro says Germany has been well prepared for the crisisImage: Robert Shapiro

That's not necessarily the case in the US, he says, where companies are used to relying much more on their own domestic market.

In the United States, exports only make up 13 percent of gross domestic product (GDP), but the figure in Germany is more than three times higher. And while most of Germany's exports are going to other EU countries, the biggest growth rates are in exports to the rest of the world.

Investing in exports

If the domestic market crumbles in a time of recession, companies have little choice other than to invest in exports, Robert Shapiro, economic advisor to the US government, told Deutsche Welle.

"That has always been Germany's strength," he said. "The country has been very well prepared for that."

There are other factors behind Germany's success in handling the crisis that Shapiro and his colleagues have taken a closer look at. One example is government action, such as subsidizing shortened working hours.

By covering part of the salaries of workers who are put on reduced hours, Berlin has managed to avoid a situation where too many people had to be laid off during the recession.

Worker in factory hall
A manufacturing-based economy can more easily focus on exportsImage: AP

Jacob Kirkegaard of the Peterson Institute for International Economics told Deutsche Welle that he felt a lot of respect for Germany's quick resurgence.

"Germany has proven that it's possible to handle a dramatic slump in sales and exports without mass firings," he says. "You just have much more flexibility than on the US market. Here the gut reaction is always: when the sales go down, people have to be fired. And when the demand is back, there's a lack of workers."

Too much government involvement?

But Shapiro cautions against simply adapting that system to the US economy. Cultural differences are part of the problem – Americans are traditionally opposed to their government getting involved in running businesses.

He also warned that despite the currently positive outlook there are still many risks for Germany.

European monetary policy is too fragile, he says, as it has to balance between the interests of all the EU member states.

The danger of countries running bankrupt is still there. Greece for instance has not seen its situation improve as much as the rest of Europe had hoped it would. And other member states like Ireland or Spain are still struggling to avoid a crisis.

A moral price to pay

Shapiro and Kirkegaard agree that Germany's exports to China are also not without a downside. There's a moral price to pay.

Falling graph in front of US flag
The US economy is struggling despite austerity measuresImage: DW-Montage

"Germany is rather careful in criticizing China because of course Berlin does not want to put its exports at risk. The US however are much more outspoken. But that of course has an impact on US exports to China."

And still, the US already seem to be readjusting their economic policy to follow more in the direction that Germany is taking. The Obama government has recognized the importance of exports – the goal is to increase exports by five percent.

"The current administration has export at the top of its agenda," Thomas Zielke says. "Obama has repeatedly said that he sees the future as being in manufacturing. And he has put that directly in opposition to Wall Street and the financial crisis."

Author: Christine Bergmann, Washington (ai)
Editor: Matt Zuvela