The Economist is hosting an interesting roundtable on Germany's economic recovery -- what's behind it and whether it's sustainable. There's a lot of discussion over all the usual suspects: The decline in the Euro which supercharged Germany's exports, the country's fiscal conservatism, and so on. But I'd point you to Carmen Reinhart's take: Germany, she says, wasn't part of the credit boom, and so it follows that they're not suffering from the credit bust.
Germany was a notable outlier in the now-notorious credit and debt boom of the decade prior to the onset of the subprime crisis. Credit relative to nominal GDP fell about 11 percentage points during 1997-2007; during the same period, credit/GDP rose 80 percentage points for most of the advanced economies. Germany’s gross external debt/GDP fell about 5 percentage points during 2003-2007, while that ratio climbed by about 50% for other advanced economies. Germany’s property market cannot even be loosely characterised as part of the global bubble. In fact, real house prices fell 11% from 1997 to 2007. Unlike Japan, which was the other notable outlier during the credit boom, it did not have the burden of a high public debt. As a consequence, despite rapid increases in government debt since the crisis, Germany does not have a private or public debt overhang of the historic proportions confronting most other advanced economies. It follows that a long and painful deleveraging is not on the horizon.
In this regard, Germany is the advanced economy counterpart to emerging markets in Asia and Latin America. Those economies also deleveraged during the tranquil booming years (as discussed in Reinhart and Rogoff, 2010). These emerging markets are not only recovering robustly — some are showing signs of overheating.
Huh. I went back to Reinhart's recent paper(pdf) on the credit boom to look into this in more detail. Table 4 has a useful measure that combines the change in domestic credit and in external debt in the run-up to the crisis -- and sure enough, Germany is a notable outlier. Check it out:
Insofar as this is a crisis in deleveraging, Germany simply isn't deleveraging, because they never leveraged up in the first place. That's not to say their economy doesn't have its own problems -- as Beatrice Weder points out, their growth rate is estimated at only 1 percent to 1.5 percent over the medium term -- but the basic condition is very different.
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