Can Germany afford eurozone collapse?

Container ship being loaded at a terminal in the harbour of Hamburg

As negotiations on changing the terms of the Greek rescue limp on, there remains a widespread presumption that Germany - the eurozone's paymaster - would always have too much to lose from the collapse of the currency union to allow it to collapse.

Analysis of trade patterns sent to me by Jim O'Neill of Goldman Sachs suggests that may be a slightly naive assumption. What his numbers show is that British exporters would probably be more damaged by a eurozone implosion than German ones: or to put it another way, businesses in the UK - which, to state the stunningly obvious, is not a member of the euro area - are more dependent on the health of the eurozone than German companies.

And - which is the more important trend - German businesses are becoming less and less reliant on selling to eurozone countries and are becoming more and more successful in selling to China and the leading emerging markets.

Here are the relevant stats. In 2000, roughly at the dawn of the eurozone, trade with the euro area represented 45.5% of all Germany's trade. That fell to 38.1% this year - and, according to Goldman's projections, will be under 34% in 2020.

By contrast trade with Mr O'Neill's BRICs (Brazil, Russia, India and China) was 3.9% of German trade in 2000, is just under 12% this year and is forecast to be more than 24% in 2020.

What is particularly striking is that in eight years German trade with China alone is projected to be 15.6% of the total, according to the trends, or not far off double the share represented by Germany's most important eurozone trading partner, France.

This leads Mr O'Neill to the following conclusion:

"If European policymakers cannot get their act together in the year ahead or the year after the German election [in 2013], I think the probability that it [the eurozone] survives might be less than I had previously thought."

Or to put it another way, by 2015 it will be so obvious to the German people that it is business with China that is making them richer that their incentive to show fiscal solidarity with Spain and Italy - to use German wealth to underpin the recovery of weaker eurozone economies - will be even less than it is today (for what it's worth, Goldman believes Germany's trade with Spain will be less than a tenth of its trade with China by 2020).

And what does all this betoken for the UK?

Well it rather implies that British businesses' efforts to reduce their dependence on European markets and increase their sales to emerging economies need to be significantly stepped up.

Right now, some 44.5% of British trade is with the euro area: our dependence on the prosperity of the eurozone is significantly greater than Germany's (which is why I have been banging on for years that although we may be powerless to do much to prevent the eurozone lurching from crisis to crisis, we have a great deal to lose if the lands across the Channel go splat, in an economic sense).

The better news is that our trade with China has been growing: we generated current account credits of £2.7bn in 2002, but that had risen to £13.8bn in 2011, a rise of 411%.

The rise in our sales to China were faster than our sales rise to any other major trading partner. But even so the increase was probably not fast enough.

Trade with China represents 3.5% of the British trade total, or a quarter of the business we do with the US and a third of the business we do with Germany.

Our trade with each of the Netherlands, France, the Irish Republic and Belgium is significantly greater than our trade with China.

British businesses are very dependent on selling to rich but relatively low-growth economies. They are particularly dependent on selling to economies - that like the UK itself - became far too indebted during the boom years (and to labour the point, I am talking here about the aggregate of household, corporate, banking and government debt, not government debt alone).

So it should be no surprise that the UK is struggling to grow at more than a desperately anaemic rate: the scale of the required re-engineering for the British economy will be the work of many years.

Not only does the UK need to become less reliant on debt-fuelled consumer spending, and become more of an investment-led and exporting economy, but it also needs to re-orient its trade away from economies as hobbled as Britain itself.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 97.

    Historically we had massive trade with the Commonwealth, then with USA, now with Europe. Trade patterns have always changed to suit market demands and will change again.
    This is not a disaster for Britain unless we tie ourselves to Europe too tightly. We must look further afield and give thanks that we are not in the Eurozone.

  • rate this

    Comment number 96.

    Many jobs are quitely being outsourced to India & the govt is keep num about i Indians are coming over to take our jobs here while we are forced out of work in our big manufacturers & banks and its not reported in the news Does this happen in Germany? I doubt it. The govt say they want highly skilled jobs but forget majority of tax payers are middle&low income earners. This country is failing..

  • rate this

    Comment number 95.

    I am sure this has already been pointed out but there is a fundamental problem with the statistics. Germany in the eurozone which distorts the figures. Based on information in this article 10.5% of our trade is with Germany (3 times the 3.5% with China) ergo only 34% exposure to the eurozone excluding Germany compared to 38.1% for Germany.

  • rate this

    Comment number 94.

    As they now live in the colossus of the USEUR, the populations of southern autonomous states must invade the northern part of the continent. Take the protest to the dark heart of europe.

  • rate this

    Comment number 93.

    I'm getting sick and tired of reading every other day that the euro is
    going to collapse
    Dont take yours desires for reality
    It's time you stopped wasting your time with uselss speculations

  • rate this

    Comment number 92.

    All those predicting the total collapse of Euro trade are simply scare mongering. Yes Britain needs to export globally and not have an over reliance on any one country but China will plateau at some point Africa is the BRIC of the future but over 1 billion Europeans still have greater spending power let keep our feet planted firmly on the ground.

  • rate this

    Comment number 91.

    On the original point of what has Germany to loose if the eurozone breaks up is quite simple, its exports will become a lot more expensive as the new currency will no longer be held down by the weaker economies. When the new DM doubles in value their exports to the rest of the world not just the rest of Europe will reduce dramatically...

  • rate this

    Comment number 90.

    Unsurprisingly we do the most trade with nearest neighbours so what difference does it make if you're in or out? Do you blame the customer for not having enough money to buy some 30 bed mansion with a 12 seat stretch limo in the garage or do you think that we should be trying to do things a little bit more practical like? Than the 'ultra cultcha'?

  • rate this

    Comment number 89.

    Why would anyone ask advice from: Goldman Sachs?
    Has this institution not done enough damage to the global economy?
    Has it not run afoul of regulations too many times?
    Analysis of anything by Goldman Sachs does not press my attention button, except to glance up & see what it's up to now.

  • rate this

    Comment number 88.

    German car makers and Industry in general did well in the good times, due largely to a) being in the Euro, and b) German savers funding the PIIGS to afford those very goods.

    I think it's safe to say that the German economy would be Kaput

  • rate this

    Comment number 87.

    Germans are not so naive to ignore that China has its own automotive industry and that shifting manufacturing to the east does not neccessarily guarantee brand protection - the Chinese are infamous for replicating products at a fraction of the cost.

    The German strategy is about negotiating and shaping global trade having market presence.

  • rate this

    Comment number 86.

    This whole marxist liberal experiment is a nightmare. We only agreed a trading zone, not a federal state. In days of empire we traded worldwide for centuries,avoiding europe like the plague. On paper it looked good, like communism, in practice it does not work. 90% of people would get out tomorrow. It will collapse, financially,then politically into civil wars. Lets get it over with quickly.

  • rate this

    Comment number 85.

    Revenge is sweet.

  • rate this

    Comment number 84.

    Germany is not wedded to the Euro at any price.They have done the maths and will know the tipping point where the cost of bailouts exceeds the cost of going alone.Obviously, if you believe the end is nigh it would be cheaper to jump earlier than keep paying. This is the political premium Germany is willing to pay to support the EU dream - it is, however, close to being exhausted.

  • rate this

    Comment number 83.

    The progress of the EU fix for its troubles can be measured against the Thatcher/Hayek episodes of the 80's but Europe is not energy independent.

    Destruction of GDP on the scale already seen can only demolish asset prices as occured in the US o8/09 where the velocity was incredible.

    Fortunately, of course, several hundred German professors know what they are doing, ahem.

  • rate this

    Comment number 82.

    I couldn't agree more. Yes, we need a more 'investment-led & exporting economy' that relies less on 'debt fuelled consumer spending' and isn't reliant on economies as 'hobbled' as ours. Problem is, your figures suggest that, with the usual irritating Teutonic efficiency, Germany has already carpeted the economic beaches of the BRICs with its own towles.

  • rate this

    Comment number 81.

    The German economy would go the same way as Japans if the euro disappeared

    German goods would be too expensive to export

    These Eurozone disasters are GREAT for Germany because they massively suppress the value of the Euro

    So Germany will keep the Eurozone on a drip feed and a ventilator as an economic organism gasping for life, but not allowed to die

  • rate this

    Comment number 80.

    Germany has gained mightily from having the euro instead of a super-strong deutschemark.

    We (the West) are all in an impossible bind. Globalisation has exported skilled jobs. In the face of this, we've tried to sustain consumer spending using enormous debts. Most of our economic output is services that we sell to each other. And our welfare systems have given us an uncompetitive cost base.

  • rate this

    Comment number 79.

    Unfortunately, our UK manufacturers are are too broke or lazy to go find new markets for our products.
    We are mostly good at letting our intellectual property rights float off to foreign shores.
    The number of cheap, but well engineered Chinese products I see coming into UK, which were designed and developed by us, and are now coming in royalty-free, is staggering.

  • rate this

    Comment number 78.

    77 - Germany cannot be said to have a blameless history, but it seems to have done OK in terms of exporting to Countries that it occupied. Japan whilst in a mess now can hardly be said to have been hampered in terms of its export markets by its militarism previously. China is one of their biggest markets and look what they did there. You argument therefore seem spuriously at best.


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