Germans Loosen Their Purse Strings

http://www.nytimes.com/2014/04/10/business/international/germans-loosen-their-purse-strings.html

Version 0 of 1.

FRANKFURT — When Europe seemed to be falling apart in 2010, the managing director of the International Monetary Fund annoyed Germans by suggesting they should stop hoarding so much of their wealth and instead buy more things from their ailing European neighbors.

Now it looks as if Germany is finally delivering.

Statistics on German trade published on Wednesday showed a sharp increase in imports from the euro zone and the broader European Union. While monthly trade figures are subject to big fluctuations, the data reinforced other recent indications that Germans are finally spending more and helping to lift up the whole continent.

The browbeatings that Christine Lagarde, the I.M.F. managing director, has periodically inflicted on policy makers in Berlin probably had little to do with the jump in German imports from other euro zone countries, which rose 8.4 percent in February compared with a year earlier.

Until recently the government led by Chancellor Angela Merkel has done little to stimulate consumer spending, as Ms. Lagarde urged. Rather, the gradual increase reflects the bigger pay increases that German workers have been able to negotiate, as well as very cheap credit. In addition, price declines in countries like Spain have made products like Serrano ham or Seat automobiles more attractive to German buyers.

“Now is a good time,” Frank Siebert, 51, said on Wednesday in Berlin as he browsed in a high-end audio equipment store in the new Bikini Berlin shopping center. He said he was in the market for new speakers. “Spending a few hundred euros is no problem,” said Mr. Siebert, a real estate salesman. “It should definitely be something high end.”

In contrast to the huge surpluses that have been typical in recent years, Germany bought almost as much from its neighbors in February as it sold to them. German exports to the euro zone totaled 34.9 billion euros, or $48.2 billion, in February, a 3.7 percent increase from a year earlier. That compares with the 8.4 percent jump in imports, which were valued at €34.6 billion, according to the German Federal Statistical Office.

German exports worldwide rose 4.6 percent during February to €92.4 billion.

“German trade with the euro zone is rebalancing,” said Christian Schulz, a senior economist at Berenberg Bank. “The rest of the euro zone is becoming more competitive.”

The increase in imports from the rest of Europe is mostly good news, economists say, especially for countries like Greece and Italy that suffer from very high unemployment and desperately need customers for their exports. But some analysts warn that Germany, which has Europe’s largest economy, could be squandering hard-fought gains in competitiveness.

Much of Germany’s economic revival in the last decade was a result of wage restraint by labor unions, who sought modest pay raises in return for promises of job security. Recently, though, workers have been demanding a bigger share of Germany’s economic success.

Last week public-service workers won a 3 percent raise, while Ms. Merkel’s government has proposed a law to introduce a minimum wage of 8.50 euros per hour. Germany has no legal minimum wage, though most workers are covered by agreements between employers and labor unions.

German wages have barely kept pace with consumer price increases during the last decade; adjusted for inflation, they fell slightly in 2013. Workers have less bargaining power because companies can move production to countries like Poland that are members of the European Union but where wages are much lower.

But as the economic recovery is giving workers more leverage with employers, Germans consumers are finding themselves with more money, some of which is flowing abroad. Jörg Krämer, the chief economist of Commerzbank, argued that German policies were eroding the discipline that allowed its economy to become the envy of the rest of Europe.

In an analysis published last week, Mr. Krämer said that in five years Germany could be suffering the same economic stagnation now afflicting France. A decade ago, he pointed out, Germany was the sick man of Europe while France seemed to be thriving. But France undercut its competitiveness with measures such as a 35-hour workweek, which raised costs for business, Mr. Krämer said. Germany risks doing the same thing by raising wages too much, he said.

In addition, he said, German consumer spending is benefiting from interest rates set by the European Central Bank that are probably too low for the German economy. The current benchmark rate of 0.25 percent is designed primarily to help crisis countries like Greece or Italy.

Germany will continue to look like a powerhouse for several years, Mr. Krämer said, because of the cheap credit and wage increases. But eventually Germany will pay the price, he said.

“Somewhere down the road there will be a new crisis,” Mr. Krämer said on Wednesday. “Then the erosion in price competitiveness will be visible.”

For now few ordinary Germans are troubling themselves with such questions. At 5.1 percent, unemployment in the country is the second-lowest in the euro zone after Austria and less than half the average for the currency union. Thrifty and risk-averse Germans have become more willing to spend in recent months as the euro zone crisis subsided.

Daniela Fabienke, a 39-year-old banker who was inspecting tablet computers in a Berlin shop, said she had already budgeted money for family expenses during the coming year, including vacations, and still had enough left over. “I just need the right product and I’ll buy myself the new toy,” she said.

There are signs that German retail spending, which for years had grown very slowly, if at all, has begun to pick up. Retail sales in February were 2 percent higher than a year earlier adjusted for inflation, according to the statistical office. Many people see the increase in shopping as a healthy sign that German workers are getting their just reward after years of prudence.

Holger Schmieding, the chief economist at Berenberg Bank, said he doubted that wage increases, still rather modest, were going to undercut German competitiveness. A bigger risk is Germany’s switch from nuclear power to renewable energy, which will raise energy prices, he said.

“The current wage settlements of around 3 percent are no threat to competitiveness at all,” Mr. Schmieding said in an email.