#TAGtribe Blog – Germany and the Euro in 2011 by @mggruenert

German_-_euro_iii

Germany and the Euro
 
Over the last two weeks, many people have been asking me about the general mood in Germany at the moment. Many are wondering how much longer Germany will be part of the Euro and willing to help out Greece, Ireland, Portugal and so on.

In the past, countries responded always in the same way to economic crises. They just printed lots of “new” money, the currency was devalued and their industries could compete again because of cheap prices. But since the Euro was introduced, countries within the Euro zone lost the benefits of this instrument. This means that Portugal, Ireland or Italy can’t influence the monetary policy on their own and so they are forced to compete with Germany at a more similar level. And even if the European Union decides to do something to help the exchange rate, the benefit from the exchange between Euro and Pound Sterling or the US Dollar is the same for all Euro member countries.

Labour in Germany is still more expensive than in most other parts of Europe. But if you consider the new technology, the well-educated labour market and a great infrastructure, German factories and services are well in front of other European competitors. Germany can produce goods more efficiently than any other country in Europe. Right after the reunification, 20 years ago, they invested in new technology and infrastructure.

If we look at it from the Irish or Portuguese perspective it is really alarming. They have to compete now on a completely new level. In my eyes they have just two possibilities to escape the economic downturn. They either have to invest in technology and infrastructure as the Germans did so many years ago or come up with completely new services, technology and products.

For example, I’m thinking of methods to save water or services which they could provide using the internet. Maybe they can become part of a 24/7 supply chain for architects in the US or Australia. They can work in Lisbon while the US guys are still asleep. This creates a time benefit and a real global competitive advantage so that projects can be delivered much quicker. With a fast internet connection three or four offices, partners or companies around the globe can work on the same project. Each project partner works in his or her own time zone. By the end of the day you could guarantee that every minute of the day somebody worked on the project.

This is just one example, but whatever the governments in Portugal or Ireland do will need a lot of money, which they do not have at the moment. It will be quite interesting to see how the European Union will deal with these issues in the future and how Europe will cope.

Now I’d like to come back to the concern raised at the beginning. In my opinion Germany is the biggest beneficiary of the Euro at the moment. They will definitely use the Euro as currency in the future. But even Germany can’t hold the whole of Europe together on its own. It is now important that the economics in other European countries grow as well and that the European market becomes more stable again. When it is solved Germany and Europe are facing more challenges. For example they have to solve the question on how to export to China without losing your intellectual property.      

Michael on Linkedin

 

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