German Exporters make Hay from Euro weakness as Global Trade Imbalances grow even Bigger

Germany which reluctantly agreed to Greek bailout plan now emerges as surprise winner from the crisis

Germany which was a reluctant member of the massive $1 trillion Bailout plan for Greece has emerged surprisingly as a beneficiary from the European crisis started by a run on the Greek sovereign debt. Germany with its prudent fiscal and monetary policies was not in favor of a bailout and had to be cajoled/threatened by the rest of European Union to bailout Greece.It was even rumored that France threatened to leave the EU to force Germany to acquiesce to the Bailout.Germany which is the world’s 3rd largest economy and a European powerhouse would have to bear  the brunt of the bailout bill.This made the German public averse to supporting the Club Med countries which were seen to be living profligately.Angela Merkel and German members of the European Central Bank were the seen to be most opposed to the idea and only the IMF carrot brought them to the table.There was also the fact that French and German banks have the biggest exposure to PIGS debt.With German banks already running huge losses from the US subprime crisis,another European contagion would have probably wiped them out.

President Nicolas Sarkozy ‘threatened to pull France out of euro’ – Telegraph

Sarkozy demanded a “commitment from everyone to suppport Greece…or France would reconsider its position in the euro,” according to one source cited by El Pais.Another source present at the meeting between Zapatero and his party members and cited by the paper said: “Sarkozy ended up banging his fist on the table and threatening to leave the euro…This forced Angela Merkel to give in and reach an agreement.”The European Union and International Monetary Fund agreed a 110 billion euro rescue plan for Greece last week. But Germany, which must shoulder a good deal of the burden, had proven reluctant to commit itself to a plan.

German Exporters making Hay from Euro Weakness as Global Imbalances grow Bigger

The Euro has weakened significantly from December 2009 when it ruled at 1.5 Euro/USD level.The almost 20% peak to trough fall has led to Germany’s already strong exporting machine to generate even greater exports.While the rest of the European countries like Spain,Greece and Portugal don’t really have the industry to benefit from Euro weakness,Germany formidable industrial machine is in a great position to benefit.German companies like Siemens,BMW,SMA Solar etc are seeing massive growth in 2010 which is being reflected in German Stock Market strength.Germany already benefits hugely from the single European currency as it derives significant revenues from exporting to other European countries.Its Export Surplus which was one of the causes of the Greek Contagion will rise more this year.The global imbalances of huge export surpluses of China,Germany and Japan on one hand and huge import deficits of countries like Italy,Spain and US on the other hand continue to grow bigger.How and when it will end is uncertain,but it will have to end one day and it will be messy end to that.

Germans Show No Way to Give Up on Euro Spurring Boom – Reuters

Rising share prices and foreign sales at Bayerische Motoren Werke AG and Siemens AG show why it may be worth keeping the single currency even as some voters balk at the cost of rescuing Greece and demand a return to the deutsche mark. As exporters benefit from the lower labor costs and currency stability fostered by the euro’s 1999 introduction, unemployment has dropped close to an 18-year low and the DAX Index is the 16- nation bloc’s best performing major benchmark this year.The result has sharpened Germany’s trading edge over the euro-region economy’s southern periphery. Europe’s largest economy became 13 percent more competitive against its neighbors in the 11 years through 2009, mirroring similar declines in Spain and Greece, according to a wages-based indicator designed by the European Central Bank.

Euro membership has nevertheless sheltered Germany, which relies on exports for 41 percent of gross domestic product, from the ravages of the global financial crisis, said Juergen Pfister, chief economist at Munich-based lender Bayerische Landesbank. Prior to the euro, the mark was a haven in times of turmoil and prone to volatility, surging about 50 percent against the Italian lira in the first half of the 1990s.“The deutsche mark would have appreciated massively as a result of the financial crisis, harming German exports and making the 2009 recession much worse,” said Pfister. “The euro provides stability.”

China imports widen US trade gap – FT

A surge in imports from China pushed the US trade gap sharply wider in May, adding to a stream of weak data that has put Barack Obama’s administration under pressure for its ­inability to right the faltering economy and stimulate the stagnant jobs market.The trade deficit grew by 4.8 per cent to $42.3bn, according to commerce department figures, the highest since November 2008 and at odds with the consensus of economists, who forecast the gap would shrink in May.

Tuesday’s trade figures provided more bad news because they showed the overall trend was towards a widening trade deficit, in spite of the administration’s efforts to create jobs by increasing exports.Imports from China, which is the country’s most politically sensitive trading partner, rose by nearly 12 per cent. That inflated the US trade gap with China by more than 15 per cent to $22.3bn, the biggest since last October.

Official Chinese figures last week showed that exports from China had surged 44 per cent year-on-year in June, lifting its monthly trade surplus to $20bn. Such imbalances infuriate US politicians, despite China’s decision last month to end its near-two-year peg to the dollar.