A-Franco-German-Tale

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Figure 6: Trade balances as percent of GDPFranceGermany2Sarkozy9Schröder180-1-2-376543EUROLehman-4-5EUROLehman21-601994 1998 2002 2006 20101994 1998 2002 2006 2010Total trade balanceTrade balance with EUTrade balance with opt-outsTrade balance with non-EUwage costs can increase the job creation dynamic, but usually at the cost of reduced productivitygrowth (European Commission, 2007). The reason why France has not beenable to benefit more from the boom 2005-7 and returned to employment-driven growthafter the Global Financial Crisis, as Germany did, is found in the deteriorating positionof competitiveness.2.CompetitivenessFrance has lost its traditional advantage over Germany in the mid-2000s. The reason isa dramatic loss of competitiveness in France and the restoration of cost advantages inGermany. There are a number of indicators for measuring competitiveness. We will herefocus on trade balances, market shares and unit labour costs.Trade balancesThe trade balances for our two countries are shown in Figure 6. Overall, the French economyhas seen their continuous deterioration for the last fifteen years, and especially since2002. Its trade deficit is now close to -5% of GDP. Germany, on the other hand, has dramaticallyincreased its net exports, which stood close to 8% of GDP before the Global FinancialCrisis started; since then it has lost nearly half of its trade surplus again. Developmentsin French and German trade are mainly driven by intra-European trade. The externaltrade of France with the non-European countries has been close to balance or in surplus.The French deficit, as that of many other member states, is mirrored in Germantrade surpluses with the Euro Area. Thus, while it is true that Germany runs a tradesurplus with the non-EU world, its main source of surpluses is intra-EU trade. Only inthe last few years has demand from China and other emerging economies somewhatcompensated from the loss of European demand.4 By contrast, intra-European trade has4. Germany has gained and France has lost approximately 3 percentage points in China’s import market since 1999 (owncalculations based on Chelem data base). However, nearly all of the French losses occurred in 2000, while the Germanprogression was continuous.Competitivenessp. 10
Figure 7: Export OrientationSource: ChelemFranceGermany20.580.590.291.695.52.657.334.5530.986.838.1110.9417.911.420.742.778.221.484.317.92210.047.211621.871.231.575.4112.370.869.133.6214.834.154.3920.5717.60.630.51.735.141.854.293.6230.547.8311.4814.79RoWBRAINDCHNDASIAJPNUSANMSother EUSPAITAGER15.250.660.294.757.742.628.787.0634.193.686.878.1512.181.371.216.4112.751.086.1414.1426.424.156.018.1414.471.561.58.8415.161.347.589.9321.462.634.6310.914.310.810.922.796.320.923.7512.9137.583.027.189.49ConsumptionIntermediaryEquipmentOtherConsumptionIntermediaryEquipmentOthersuffered from the global financial crisis and the ensuingEuro-crisis has caused a collapse of demand for Germanexports from Southern Europe that has helped to rebalanceintra-EU trade. This indicates that German tradesurpluses rely less on competitive advantages than ondemand from within the Euro Area. Hence, German authoritiesshould embrace French demands for stimulatinggrowth in Europe. Furthermore, our data prove howstrongly the German economy depends on European integration.If trade surpluses are a measure of economicsuccess, Germany has a lot to lose from the disintegrationof the Euro Area.Figure 8: Cumulative market share indices:total world tradeSource: CHELEM and own calculations.1.0-.1-.2-.3-.4FranceEUROLehmanIt is sometimes claimed that Germany does not needthe euro because it is a “big international player” whosuccessfully trades with emerging economies. This isnot true. Figure 7 shows that with the exception of equipmentexports, Europe is the most important destinationfor German and French exports, although Germany ismore important for France than France for Germany.Constant market share analysis-.5.08.04.00-.04-.08Germany1996 2000 2004 2008How can the evolution of these trade balances be explained?Constant market share analysis provides uswith the tools for analysing broad demand factors andsupply-side competitive advantages. A country can benefitfrom world demand either by specializing in productsfor which there are significant increases in demand(the product effect), or by focusing on expanding markets(market effect). The net residual between these twodemand effects and the overall change in market sharesis a measure of the competitiveness due to supply-sidefactors.5 Figure 8 shows an index of the change in marketshares according to these three effects.-.12-.16TOTALPRODEURO1996 2000 2004 2008MARKETCOMPMIXLehman5. There is also a “mixed effect”, which is however only relevant in very rapidly expanding situations.Competitivenessp. 11
Page 1 and 2: Economic growth and competitiveness
Page 3 and 4: AbstractFor years France’s econom
Page 5 and 6: IntroductionRarely have economic po
Page 7 and 8: Figure 3: Share of construction in
Page 9: Figure 5: Employment (3)Source: OEC
Page 13 and 14: Figure 9: Gain/Loss of Market Share
Page 15 and 16: Figure 11: Share of manufacturing i
Page 17 and 18: Figure 14: Relative ULC competitive
Page 19 and 20: Figure 17: GDP, Revenue, Expenditur
Page 21 and 22: manyEstimates Germany1992-2010 1999

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