Laser manufacturer Trumpf relies on the euro zone for nearly half its sales.
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But it is economic, not political, logic that should drive Germany to reconsider its approach to Europe's persistent woes. Austerity alone is like the sound of one hand clapping; to make thrift profitable, someone else still has to spend. For years, Germany's model of domestic frugality worked thanks to the lavish spending of the southern countries Germans now criticize. It was southern Europe's debt-fueled consumption that helped yield massive German trade surpluses and the profits that came with them. Germany may be right that those countries now must control their excessive reliance on spending. But if Europe is to follow that path back to prosperity--and is to continue supporting the German economy in the process--it is the frugal Germans who must learn to spend.
The Trouble With Thrift
Even in the peaceful rolling hills of Stuttgart, Europe's economic turmoil is starting to have an impact. At the massive headquarters of auto giant Daimler, there's plenty of hand wringing about the recession. "Sales of cars to Western Europeans have fallen back to 1993 levels," says Daimler's chief economist, Jürgen Müller, who notes that a third of the company's revenue still comes from that region. Müller believes Germans must increase their domestic consumption to help spur regionwide growth.
It's a shift supported by many economists, like Peking University finance professor Michael Pettis, who also thinks it would increase financial stability in the euro zone. Before 2000, yearly wage growth in Germany was 3.2%; in the decade after, it averaged 1.1%. The result has been a 16% household savings rate, which, lent out by German banks to fund real estate and business projects in places like Spain, Italy and Greece, actually helped contribute to those countries' debt bubbles.
But abandoning traditional frugality will come hard to the thrifty entrepreneurs of the Mittelstand. The argument that Germany should become more of a consumer society to help with European economic rebalancing "is absolute nonsense," says Nicola Leibinger-Kammüller, the second-generation family leader of Trumpf, a $3 billion-in-sales Baden-Württemberg-based lasermaker that is 100% owned by her family. It's the southern nations that need to change, she says, not Germany. "Solidarity with Europe, yes--but other nations will have to do their homework if they want to have lasting success."
To Leibinger-Kammüller and many other Germans, it's utterly baffling that they have become scapegoats for Europe's economic troubles. After all, they are the ones who've done the hard work of reform. Others should follow, not criticize. Ten years ago, through a series of reform targets called Agenda 2010, instituted by then Chancellor Gerhard Schröder, Germany got its fiscal house in order and dramatically increased the global competitiveness of its labor markets, in large part by cutting high wages and using more temporary workers to increase flexibility.