The secret to Germany's export success

New VW cars, covered with white protection sheets, wait to get loaded onto transport ships at the Volkswagen car factory Emden on April 24, 2009 in Emden, Germany.

It's quite simple really - Germany makes things which people in countries with growing economies want to buy.

As China grows, so does its demand for the machinery which its factories need - and for the accoutrements of wealth which its new rich think they need, like flashy BMWs.

It is true there may be a "bungee effect" - the economic fall was so fast and far that the springing back from recession now seems all the stronger - the German economy grew by 3.6% last year, much more than comparable economies like that of Britain or the United States.

But that bounce from down does not explain Germany's current robustness.

After all, the fall was deep in the US and Britain, too.

One difference is that Germany did not have a property bubble which then burst, leaving consumers and companies pulling in their belts to a painful degree to pay off debt.

'Embraced reforms'

In Germany, for example, renting a home is perfectly respectable, whereas in Britain and the US the great aspiration is to own - even if that means (or at least meant) saddling a mega debt round the owner's neck.

Image caption Volkswagen and BMW have found it easy to move production to lower cost sites

The result is that British households have 50% more debt relative to their incomes than families in Germany. And debt is now a dampener.

Before the crash, it did not seem that way.

Germans expressed angst and even some envy of the Anglo-Saxon economies. Was Germany hide-bound, stuck to tired old manufacturing, they wondered. Shouldn't our labour markets be more flexible, they asked.

And it is true that for the decade as a whole German growth, at around 1%, seemed measly compared to the US and Britain (though that lowly German figure looks better when you realise that the German population was falling while that in Britain and the US was rising).

All the same, German companies made changes - but without the big bang of deregulation.

The country embraced labour market reforms, but in a measured way. It is now easier to hire and fire than it was a decade ago.

Companies have also taken advantage of the pool of workers in the east of the country (and will do so even more with the full opening of the German labour market on 1 May).

Volkswagen and BMW, for example, have found it easy to move production to lower cost eastern sites around Leipzig.

There was some protection of workers during the recession.

Companies, with an eye on the up-turn, found ways of putting people on shorter time rather than sacking them.

Government helped to soften the burden, again with an eye on the future. Unions now recognise that the quid pro quo is some restraint on pay.

They get some reward with an unemployment rate that keeps falling.

'Spread widely'

The signs of success are there in countless ways:

  • BMW said it is going to hire another 2,000 workers
  • BASF, the world's biggest chemical company, reported a 40% jump in earnings
  • Siemens, Europe's biggest engineering company, said profits will nearly double this year

Take the case of Bosch, the maker of parts for machinery and cars. It did cut costs in the recession but not by laying off masses of people. Last year, its post-recession sales were a record 47bn euros, and it is promising to take on more staff.

This recovery is spread widely because every German town seems to have its periphery populated by the famed "mittelstand" of small and not-so-small companies, exporting countless unglamorous but profitable products.

These companies are often family-owned and founded on values of quality and investment, combined with a shrewd search for markets.

As Artur Fischer, the chief executive of the Berlin stock exchange, told the BBC: "Germany has done a number of things correctly and at a much earlier stage. We re-engineered our economy when everybody else saw no need for that.

"Rather than making people unemployed, we went on to 'short time' where companies didn't have to fire people but they could work for only four hours a day or even less."

For him the cloud on the horizon may be rising interest rates as the European Central Bank starts to worry more about inflation and raises interest rates.

It should be said, too, that Germany is also helped by the euro.

Whisper this in Germany itself, but the woes of Greece, Ireland and Portugal stop the euro being as strong as the soaring German economy alone might take it - and that benefits German exporters very nicely indeed.

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