Quote Originally Posted by Ulenspiegel View Post
Let's simply assume we want to reduce our trade surpluywith France that is around 100 billion per year.:

1) Mass emmigration from France to Germany is a no-go.

2) France is not able to provide enough useful stuff like energy when Germany needs it.

3) Higher taxes in Germany and transfer of money to France is political suicide.

4) Therefore, we need some large-scale investment programms, i.e. German companies get tax dedection/write -offs for investments in France. Which fields would be useful?
A flexible currency exchange rate would help a lot, as our exports would be more expensive and theirs cheaper in this trade relation. This would even have a huge effect if the goods and services traded would remain the same.
We don't have flexible exchange rates any more, of course.

Similar (small) effect on competitiveness of German exports would come from an identical VAT. Theirs is 19.6%, ours is 19%. There might be a EU-wide harmonisation at 20% soon.

France could have a greater effort at supporting its exports, similar to German Hermes loan guarantees for exports (and we should really reduce ours except for a couple strategic industries if they have below-average profit margins).

France could at least attempt to attract more German tourists (Cote d'Azur, not only Paris). So far, Americans and Russians appear to consider France more as a tourism country than Germans do.



It wouldn't help if Germans invested more in France. About 90% of our direct foreign investments are related to marketing our products. The construction of a factory abroad is a rare exception to the rule.
Moreover, more capital export to France makes no sense because net capital export is in macroeconomics (VGR) the other side of the coin of net goods & services export. It doesn't solve a trade imbalance, it's the other side of the coin of a trade imbalance!

Germany also needs to push for higher wages. This means less cost competitiveness, reduced social problems, higher consumption (= more import of consumption goods) and a smaller savings rate. Our trade balance surplus could disappear and the French trade deficit would become a French problems instead of a Franco-German problem.


In the end, they need to rebuild their industrial production. They're dropped it too far, just like the UK and US. A country should balance its trade over time, and this can only be achieved with a high standard of living (high goods consumption) if the country has the goods production and export-capable services production to afford this.


The deficit country issues are long-term issues which can be resolved in one or two generations with good policies. Germany's responsibility is at most to balance its own trade, so we're not an exogenous source of pressure that makes our friends' problems worse.