GERMANY as usual yet again plays only its one note economic flute - a picture postcard to the rest of the world hiding a domestic ruthless economic selfishness that does not extend to its over 3.1 million unemployed and rising (or 5 million, 3 or 5 depending on your preferred measure)! Since the mid 1970s Germany has maintained a high unemployment rate and in most years a depressingly low consumer spending. The effect is partly borne by migrant workers, but less than imagined; very much by German youth and by early retirees. This coincides since the 1970s with local and regional government spending restrictions and cuts. German industry has been forced to rely heavily on exports. Germany's economy is a good example alongside Japan of how year after year substantial trade surpluses do not a happy economy make, and do not translate well into general economic growth. 
In US dollar terms the economy experienced long recessions and near-recession periods in the first half of the 1980s and second half of the 1990s and first half decade of the twenty-first century - half of the last three decades. These were only growth periods in Deutschmark terms.
Both Germany and Japan have been inflation, export surpluses, high currency exchange rate, and monetary policy obsessed with one major difference, Germany kept its national debt low and unemployment high while Japan did the opposite. 
Both countries, however, sacrificed domestic consumer-led growth (thereby restricting imports) on the alter of exports above all else. They do not make happy trading partners - a model and brand followed by China that can at least claim some good reasons for doing so until now. 
Following their failures to become world military superpowers, Germany became mesmerised like Japan by the wonder of being perceived around the world as an economic superpower. Once the post-WW2 decades of reconstruction ended in the 1970s oil-price recession shock, since then Germany and Japan preened themselves as creditor nations, and in Germany's case especially the cost has been lower growth, mainly export-led and therefore high unemployment. Economic conservatism was excused for many years by national anxiety in general, a pervasive sense of economic insecurity, paranoid fear of inflation, and of hyper-inflation in particular. I know Germany very well and can confirm that these feelings of fearfulness were genuine even in the halcyon days of fast growth and full employment. The second half of the twentieth century confirmed Germany's reputation as a strong economy, the world's engineer, a land of discipline, quality and precision in design as in manufacture. Japan developed a similar production ethos supplemented by diligent sales-marketing, reverse-engineering innovation, and price competitiveness. The problem is that what impressed foreign markets became the sum total of what impressed Germany and Japan about themselves! Their only wish is for this to continue indefinitely. Meanwhile German manufacturers have been not even reliant on German bank loans but able to self-finance investment and rely on bank borrowing in its trade partner countries.
Today, Germany's goods exports are 41% ratio to GDP, one third more by value than total of German industrial output (compared to goods exports in UK of 17% ratio to GDP, 40% less by value than total UK industrial output, and 6% in USA, only 30% of total industrial output). Services in Germany are 66% of GDP, compared to 82% in UK and 77% in USA. Germany's imports are 33% ratio to GDP (half of which is energy and some of the rest for re-export), compared to imports ratio to GDP of 23% for the UK and 10% in the USA. Germany can claim to be a substantial importer, but its greater reliance on the external account bespeaks an repressed domestic economy. This, it was hoped by other EU members, would change with the Euro single currency whereby the German economy as the EU's largest (equal to UK and Spain combined) would open up more to become a more balanced two-way trading partner with the rest of the EU, not least because of the reconstruction and development of East Germany. That did not happen! German policy setters did not allow it to happen! The Einheitssteuer tax to fund reconstruction was sufficiently harsh to dampen demand in the whole country - it was a totally unnecessary tax other than helping to keep the economy relatively closed within the EU. Unlike the UK in the nineteenth century when it ran decades of trade deficits because of following a 'free trade' policy alone that benefited the growth of continental Europe more than the UK, Germany found ways of maintaining trade surpluses even within the free trade zone of all of the EU!Germany’s reliance on manufacturing to spur export-led growth was highlighted on Friday by an exceptional spurt in industrial orders, reported as parliamentarians showed the fiscal discipline they are famous for by trimming €5.6bn from this year’s German budget. Industrial orders leapt by 4.3% in January, largest monthly increase since June '07, helped by the weaker euro.
The rebound followed a 1.6% fall in orders in December at the end of a period when de-stocking dominated over output investment. Eurozone services have been hit by weak domestic demand causing and caused by rises in unemployment and cut-back in governments' stimulus measures.
As usual, cuts in the German federal budget will mostly affect spending on welfare and job creation. This beggar-my-neighbour via trade action should trigger complaints from trading partners, especially in EU countries that have been urging Germany to increase public spending to stimulate domestic demand and help the recovery of the whole of the eurozone.But, like Japan, Germany is well-versed in evading domestic stimulation (also known as endogenous growth impulse). As a recipe for everyone else it is of course impossible for all others to similarly shift their policy stance to focus only on export-led growth; exporters need importers - if some countries insist on running high trade surpluses other countries have to run high trade deficits. It does not therefore behove Germany to tell Greece or any other countries how to manage their growth, and certainly not on the German model, a model that can only ever suit the few, not the many!
Members of the ruling centre-right coalition pushed through the cuts, which will trim government spending from €325.4bn ($443.5bn, £294.5bn) to €319.5bn, and reduce the forecast deficit for 2010 from €85.8bn to €80.2bn, to only 2% of GDP, which is simply callous, appallingly low when the EU and the rest of the world is recovering from recession, and shows an indifference to national unemployment, which today is only 16% below what it was in the Germany of 1933 (although 6 millions unemployed was only the official figure; other figures suggest 11 millions)!
There is a historic logic to Germany's obsession with exports. The German economy failed to heed the export mystique only in the years up to and after 1933-45 that was, however, also based on seeking economic independence from the global economy. Between 1910 and 1913, exports accounted for 17.8% of Germany's GDP, then 14.9% in the second half of the 1920s falling with the Great Hyperinflation and persisting in falling to only 6% in the second half of the 1930s under the Nazi regime, then the war. But by 1950 accounted for 9.3% of West Germany's GDP. With postwar economic boom, exports rose to 17.2% of GDP in 1960, and to 23.8% in 1970, rising through economic downs and ups and domestic retrenchment to 26.7% by 1980, and 33% in 1990, up to 41% today. Fine, but this cannot continue!
The original budget was tabled by Wolfgang Schäuble, the finance minister, and proposed the highest deficit ever recorded in absolute terms – more than double the previous peak figure of €40bn (but if today only 1% of GDP!). The FT commented that "it is rare for parliamentarians in Germany to attempt to reduce federal spending, rather than try to increase budget lines for their favourite projects". Er, not so, what planet has the journalist been living on? The coalition government's majority Christian Democratic Union party and minority Free Democratic Party decided that Germany needed to send a signal to the rest of Europe – particularly in light of the ongoing Greek economic crisis and pressure on the euro. What Europe do they imagine they have been living in?The gradual recovery of the German economy, and the continuing only relatively lower unemployment by Germany's high levels it has become inured to, made the cuts supposedly possible. The spending figures and the cuts were opposed by Social Democrats and Greens (a party I helped to found in the late 70s), but will be passed March 19.
