Germany’s Super Competitiveness: A Helping Hand from Eastern Europe

Discussions about the current-account imbalance within the Eurozone have focused on the under-competitive periphery and super-competitive Germany. This column suggests that the argument ignores one powerful way that Germany lowered its relative unit labour costs. German firms offshored parts of their production to the new member states in Eastern Europe, Russia, and the Ukraine.   

Germany’s substantial trade surplus with its southern neighbours is in the spotlight (Wyplosz 2010). Many economists argue that Germany’s trade imbalance with its southern Eurozone neighbours has contributed to their woes. German industry has boosted the competitiveness of its exports over the past decade by keeping wages flat.