Trading places: The UK, Germany and France

Stephanie Flanders
Former economics editor

Image source, AFP
Image caption,
The UK is now Germany's number one trading partner

We will hear a lot this week about the UK's relationship with the rest of Europe. The 50th anniversary of the Elysee treaty also shines a spotlight on the relationship between Germany and France, which these days looks decidedly strained.

But we shouldn't forget that the UK is pretty important to Europe as well. And - on one measure, at least - our economy is now even more important to Germany than France.

We are constantly reminded that the eurozone is the UK's largest trading partner. But the reverse is also true.

If you look at both exports and imports, the eurozone economies do more business with the UK than any other country, including the US. On average, we accounted for nearly 14% of eurozone exports between 2007 and 2011 and just over one-tenth of its imports.

If that doesn't surprise you, maybe this will: the UK recently overtook France and the US to become Germany's single largest trading partner.

David Marsh points out, in a note published today, that Germany's combined trade with the UK in the first nine months of 2012 came to 153bn euros (£128bn; $204bn).

That's more than France or the US.

Figures on the UK side suggest that the reverse is also true - that the UK's total trade with Germany is now slightly higher than with any other country, including the US.

This may not last, but it's consistent with a broader trend in Germany's trade, away from other eurozone countries, which has been much debated in Germany and France, and was flagged up last year by the likes of Goldman Sachs.

The latest figures show that only 37% of German imports and exports in the first three-quarters of 2012 were with other euro member states, down from more than 45% when the euro started in 1999.

As the UK's trade ministers know very well, the fastest growing markets for German products aren't in the UK but in the Bric economies.

The likes of India and China now account for about 10% of German exports. We only sell 5% of our exports to these economies, and France doesn't do much better at 6%. (Consolation prize: the Netherlands, Spain and the Republic of Ireland do even worse.)

By 2020, Jim O'Neill from Goldman Sachs predicts that Germany will be exporting twice as much to China as to France.

It's dangerous to extrapolate. Especially, perhaps, where China is concerned. But it's fair to say that the trade ties between Germany and its euro partners, which helped drive the creation of the single currency in the first place, are not nearly as strong as they were 10 years ago. Whereas Germany's trade with euro "outs" like the UK and Switzerland continues to grow.

I was at an annual get-together of British and French politicians and business leaders this weekend, where the irony of recent events in North Africa was much discussed. Our bilateral security relationship with France has been getting stronger, just as our relationship on European matters has hit a new low.

One senior French thinker and businessman joked: "We make war with the British, and we try to make money with the Germans." The UK seems to be learning to do the same.