As Germany's Economy Rebounds, Anxiety Prevails

Workers assemble a Volkswagen Golf Plus in the production line in Wolfsburg, Germany. i i

Workers assemble a Volkswagen Golf Plus in the production line in Wolfsburg, Germany. hide caption

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Workers assemble a Volkswagen Golf Plus in the production line in Wolfsburg, Germany.

Workers assemble a Volkswagen Golf Plus in the production line in Wolfsburg, Germany.

Germany's economy is rebounding from the global downturn much faster than many analysts expected. Growth rates are beating predictions, export orders are up and the jobless rate is down.

But some economists warn that Germany's reliance on exports and recent government austerity measures risk undermining the recovery of Europe's largest economy.

At Volkswagen's main German production plant in the city of Wolfsburg, the shiny frames of new VW Teguan and Golf 6 cars look like they're floating as they move along conveyor belts and chains suspended above the factory floor. On the ground the robotic arms move with awkward efficiency as they weld, solder and glue car parts together while workers man control panels.

The foundation stones for the Wolfsburg factory and the city were laid by the Nazis in 1938.

But soon after opening, Hitler's dream of mass producing the ideal German car took a back seat to producing wartime rockets, anti-tank weapons and military vehicles. This important arms and parts factory was repeatedly bombed by the Allies, which destroyed 70 percent of the factory.

"Here on the left — the steel girder — you see the holes; those holes were made by bombs all those years ago," a VW tour guide points out.

An Export Country

But a few shrapnel scars and a recently added memorial in the town center commemorating the 20,000 wartime slave laborers used here are the only reminders of the German auto industry's dark past.

Now a leading global corporation with 10 different brands and factories around the world, Volkswagen is looking forward — especially in Asia.

Willy Dorr is with IG Metall, the leading trade union for Germany's VW workers.

"Germany will always be mainly an export country and it must stay an export country. For the auto industry, the biggest growth areas will be in China and India, as well as Russia and South America," Dorr says, speaking in German.

Led by a boost in exports due, in part, to a weaker euro, Germany's overall economy is starting to surge again. The Federation of German Wholesale and Foreign Trade says exports grew by 30 percent in the first half of this year. And the jobless rate continues to fall.

The federal statistical office says in June the number of Germans with "gainful employment" is at its highest since German reunification more than 20 years ago.

Gloomy Forecast For The Eurozone

Despite the good news, some economists are downright gloomy about the wider picture. That's because German consumption is flat and wages are down.

Those facts have economists, including Simon Tilford of the Center for European Reform, deeply worried about wage problems across the heavily indebted, 16-country euro currency zone.

"If German wages are falling, falling by 1.5 percent, the Greeks and the Italians, etc., have to make sure that their wages fall by even more than that," Tilford says.

Now, that spells slump or at least very, very weak growth. Very weak growth or slump is lethal for economies as indebted as these economies, because slump, deflation implies increases in the real value of debt."

He warns that another giant obstacle to Germany's speedy recovery is what he calls the country's dangerous over-reliance on exports. More than 60 percent of Germany's exports are to other eurozone countries. Tilford says Germany cannot use exports to lift the eurozone out of its crisis.

"Germany has been a huge drag on the eurozone economy because its growth has been dependent almost exclusively on exports. Domestic demand in Germany has been stagnant," he says.

"Now that has led to the emergence of an enormous trade surplus in Germany with the rest of the eurozone. Now, that's not a model that everyone can follow simultaneously. That's a mathematical impossibility. One country's surplus is another country's deficit," Tilford says.

Getting Germans To Spend

Tilford also warns that Berlin's federal budget cuts — the biggest austerity plans in the post-war era — are "the last thing the eurozone needs right now." He says Germany needs to spend, invest and consume more domestically if the eurozone is to pull out of the sovereign debt crisis.

Volkswagen executive Peik von Bestenbostel says Germans have a history of saving and getting them to consume is easier said than done.

"It is their personal decision whether they consume or not. So you must leave that to the struggle of powers in the markets. And the same is true for the international markets and competition: those who have attractive products will sell them, and others might not do so good in that competition," von Bestenbostel says.

He says criticism of the country's reliance on exports is, in part, due to jealousy of German goods, including its cars, which are efficiently produced and in global demand.

But for Germany questions persist whether the export growth model is a sustainable one.

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