The team at flassbeck-economics last week studied an article by Adam Posen in the Financial Times (possibly paywalled).

His analysis is not identical to what Gerhard Bosch had to say last week, but we found many similar views.

Adam Posen makes a critical note of Germany, which tries within Europe “to induce member states to follow Germany’s path to competitiveness: cutting the cost of labour”. As has been noted on flassbeck-economics before this may be of limited use for a small country with an open economy, but it cannot be a strategy for Europe in general.

Also it is doubtful whether Germany’s low wage strategy was really successful. Its rate of investment relative to its gross domestic product is too low; since 1991 a decline from 24 percent to less than 18 per cent has taken place, while other leading economies display higher figures. Additionally, Germany is behind in terms of higher education, and this may well be related to its poor performance on productivity growth, Adam Posen believes.

Germany’s surplus when exporting to other countries has had a price, the article states: “Dependence on external demand has deprived Germany’s workers of what they have earned, and should be able to save and spend. This leaves them dependent on exports for growth, in a self-reinforcing cycle”.