The Euro Area Imbalances Narrative in a Franco-German Perspective: The Importance of the Longer-Run View

Ansgar Belke and Daniel Gros

The Economists' Voice, 2020, vol. 17, issue 1, 17

Abstract: There is a symmetrical debate in two Euro area core countries: in France about the restrictive fiscal policy of Germany, leading to a huge external surplus, in Germany about the insufficient compliance with fiscal rules and the lack of structural reforms in France. What are the real causes of the divergence between the two economies? We show that different indicators of competitiveness yield very different results depending on the base period used, e.g. 1995 (peak of reunification boom), 1999 or 1990. A comparison with the pre-unification period shows little gain in competitiveness. We also find, somewhat surprisingly, that Germany’s industry is not more integrated in international value chains than that of France or Italy. We then look at the link between export growth and export prices and argue that in the long run exports are not driven by competitiveness but by the increased supply of labor resulting from unification. In addition, we ask what drove ‘wage moderation’ in Germany: policy or the labor market. We finally analyse the longer-term trend in fiscal policy and the resulting distributional consequences in both countries. Our more general policy implication is that any analysis which compares today to the trough of German performance after unification risks over-estimating the potential of the country. Given that the ‘internal unification’ process is complete now, one should not expect the Germans to continue to outperform France as it has done over the last two decades.

Keywords: current account imbalances; France; Germany; international competitiveness; wage moderation (search for similar items in EconPapers)
JEL-codes: E62 F16 F41 F45 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/ev-2019-0034 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:evoice:v:17:y:2020:i:1:p:17:n:3

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/ev/html

DOI: 10.1515/ev-2019-0034

Access Statistics for this article

The Economists' Voice is currently edited by Michael Cragg, Dwight Jaffee and Joseph Stiglitz

More articles in The Economists' Voice from De Gruyter
Bibliographic data for series maintained by Peter Golla ().