The distance between them Hollande's France and Merkel's Germany are growing apart economically and politically
(3 of 4)
The biggest and best-known companies, like Volkswagen and BMW, have been leading this trend, but many smaller firms are now part of it too. Westfleisch, a meat-processing cooperative in the northern German city of Münster, recently announced that sales in the past year had hit a record, profits were up 20% and, for the first time in the firm's 84-year history, it had slaughtered more than 7 million pigs. A key reason: Chinese and Russian consumers have taken a liking to Westfleisch sausage. At the annual meeting of the cooperative's members, many of them local farmers, chief executive Helfried Giesen said, "We've reached new heights."
Overall, Germany's exports within Europe have continued to rise, but as a percentage of the total they have dropped to a 20-year low. The euro-zone countries now account for just 42% of Germany's exports, a smaller percentage than that of France or Britain, which isn't even a member of the currency union. While some other European countries, including Italy and France, have also benefited from growing sales to emerging markets, they haven't had anything like the same impact as in Germany, whose trade surplus has soared while others have gone deeper into deficit.
The luxury automaker BMW started an assembly operation in China in 2003 with a joint-venture partner. Last year it sold more autos in Asia than in North America, and this April, China became the firm's biggest market. At engineering giant Siemens, just under half of total revenue comes from the Americas or Asia. And on it goes, from the chemical industry to sausage producers. The percentage of German exports to China alone has doubled in the past five years, to 6% of the total.
There's an obvious risk to this strategy since, after years of heady growth, China, Brazil and other emerging economies are performing far more mundanely this year. "Germany has been more successful than other countries in tapping growth outside the euro zone, but this growth doesn't look sustainable," warns Paul De Grauwe, an economics professor at the University of Leuven in Belgium. Still, De Grauwe says, the euro's weakening on international finance markets in recent weeks serves to make German goods even more competitive. The devaluation, he says, "is like a gift from heaven."
In the financial markets, Germany's success is begetting more success, often at the expense of its European neighbors. As the primary recipient of money flowing out of Spain, Greece and other troubled euro-zone countries, it is able to attract financing on spectacular terms. In May the Finance Ministry for the first time issued 4.6 billion euros in two-year bonds with an interest rate of 0%. In other words, taking inflation into account, investors were actually paying the German government to take their money. The issue quickly sold out.
Politically, some tectonic plates are shifting. The integrationist fervor in Germany that was critical in forging the E.U. and the single currency is now being openly questioned. A YouGov poll in the weekly Die Zeit before June's Greek elections showed that 69% of Germans think Greece should leave the euro, and public opinion is also against Germany's underwriting bigger bailouts of Spain and others.
Then there's Thilo Sarrazin. He's a former member of the German central bank's ruling council turned controversial author. His latest book, which shot to the top of the best-seller list when it was published in May and has stayed there since, is called Europe Doesn't Need the Euro. Sarrazin argues vigorously that Germany shouldn't be bailing out the rest of Europe and has been lending a hand only because of guilt over its wartime past. The pressure, he writes, "is being driven by that very German reflex, that the Holocaust and World War II will only finally be atoned when all our interests, including our money, are in Europe's hands."
That's an extreme view, of course, one that has set off a fierce debate in Germany. What's incontestable is that Germany, both mentally and economically, is increasingly out of sync with its traditional European partners.