Rhineland Rule

Germany: Germany’s footballers, dispatched from the soccer World Cup by Spain on Wednesday, have their flaws. But its exporters are undeniably world class. The financial collapse and the weak euro have shown the benefits of the German economic model.

Unlike countries that engaged in huge fiscal and monetary stimulus, Germany is making a relatively standard-form exit from the 2008-09 recession. Its banking system loan problems were primarily incurred outside the country. Domestically, banks maintained conservative mortgage lending policies, with little house price inflation since the middle of the 1990s.

When the crash came, Germany’s Social Democrat finance minister Peer Steinbrück described aggressive Anglo-American stimulus policies as “crass Keynesianism” and refused to follow them. With only a modest budget deficit and the relative conservatism of the European Central Bank’s monetary policy compared to the U.S. Federal Reserve or the Bank of Japan, German recovery has not been significantly hindered by policy-driven imbalances.

Industrially, Germany had already reduced its costs substantially compared to other euro zone members through labour and pension reforms, while maintaining its manufacturing focus through several decades when others were bewitched by finance. Thus it was well placed to benefit from global economic recovery.

Moreover - and somewhat paradoxically - though the bailouts of Greece and other European economies have burdened Germany, the accompanying weakness of the euro has boosted its exporters, quickening the pace of its recovery in general. With exports up 29 percent in May from the previous year, and industrial production up some 12 percent in the same period, Germany's recovery has been genuinely rapid. The Rhineland economic model, which emphasises manufacturing, medium-sized companies, technical education, workforce discipline and quality control - all with a long-term perspective - was sometimes derided during the 1995-2007 boom in finance-oriented, get-rich-quick economies like the United States and Britain. It has once again proved its staying power.