Wolf Richter: “German Success Recipe” or Blip?


Despite the Eurozone debt crisis, the German economy has been on a roll, with unemployment at a 20-year low. Exports surpassed €1 trillion for the first time ever. The Federation of Wholesale and Foreign Trade even issued a card to commemorate the moment. For the year, exports rose 12%. In 2012—based on demand from Asia, Latin America, Africa, and Eastern Europe—exports are expected to grow 6% to €1.139 trillion—when GDP is only €2.37 trillion ($3.1 trillion)!


But the recovery was steep and enormous. So it’s perhaps just natural that gloating would infect the German media when, from their perch of success, they look at the economic mayhem in other parts of Europe. Even the Handelsblatt falls prey to it from time to time. I bookmarked its October 17 article, The German Success Recipe Is Called Industriousness and Boredom, because it was just too much. Now the first shadows have appeared, and the “German success recipe,” despite its strengths, might turn out to be a blip.

Throughout the 90s, following its reunification, Germany was the “sick man of Europe,” marked by growing unemployment, stagnation, and lacking innovation. The dotcom euphoria bypassed it. A new income tax to fund the rebuilding of East Germany didn’t help. Wages came under pressure. Industry restructured. But rather than venture into the “new economy,” companies specialized in unglamorous but profitable niche markets, focused on high-quality manufacturing, got rid of unprofitable operations, and largely avoided growth through acquisition. Revenues barely budged, hence the stagnation. But it did create a modern export-oriented industrial foundation with some unique features.

Federal and state agencies support the international endeavors not only of coddled multinationals like Siemens and VW but also of family-owned mid-size enterprises that form the core of German industry. For example, the Chamber of Commerce, a federal agency, has branches all over the world to support German companies in doing business overseas. It’s all part of “Deutschland AG.”

The capital structure of most companies is conservative. With significant amounts of equity, returns on equity might not be stellar. But the fact that balance sheets weren’t leveraged to the hilt paid off during the financial crisis when the historic order collapse didn’t cascade from an operational fiasco to a financial fiasco.

Quarter-to-quarter thinking (short-term-itis) is less prevalent among German managers, particularly of mid-size companies that are often closely held and can afford strategies that don’t immediately translate into upticks of their stock price.

While companies might not be able to lay off employees easily, they can cut their pay in half and reduce their hours. The government makes up half of the cut. Thus, employees get a 25% cut in pay, instead of being laid off. The government doesn’t have to pay unemployment compensation. Disruptions, morale problems, and dislocations that result from layoffs are mostly avoided. The company remains fully staffed with experienced people whose technical skills are up to date. As orders come in, hours and pay can be ratcheted up as needed without the expense and delays of having to hire and train new people.

So when the trillions that central banks printed during the financial crisis sloshed around the world and created demand in China and other developing nations—and eventually in the US and Europe—German companies were ready. Thus the miracle-like recovery from the abyss of the first quarter of 2009.

But now factory orders are plunging again—4.8% in November (reported January 6), nearly wiping out October’s surge of 5%. In September, they’d fallen 4.3%. In August, they were down 1.4%. In July, the were down 2.8%. In November, domestic orders eased 1.1%, orders from the Eurozone declined 4.1%, and ominously, orders from countries outside the Eurozone plummeted 10.3%.

Clearly, the “German success recipe” will be tested in 2012. If there are more declines in export orders, GDP will take a significant hit, even if the Eurozone makes it through the year intact. Which is by no means certain. Greece is already teetering after five years of recession and 17.7% unemployment. Troika inspectors are on their way … to demand yet more cuts. And the Prime Minister threatened everybody with the nuclear option. For more on the whole debacle, read…. Greece’s Extortion Racket Is Maxed Out.

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  1. Frank Speaking

    I vote blip…

    Germany and Europe Expect a Tough 2012

    The year 2011 was a bad one for Europe. But 2012, Angela Merkel believes, could even be worse — for her country at least. Both the German chancellor and Finance Minister Wolfgang Schäuble believe the euro crisis will finally make itself felt in Germany. The outlook isn’t any rosier elsewhere on the Continent.


    Measure of Fear
    Banks Bunker Hundreds of Billions in Deposits at ECB

    “Just before Christmas, the European Central Bank flooded the financial markets with 500 billion euros — a move that may not ultimately have the desired effect of stabilizing banks. Instead of passing that money on in loans to businesses to spur the economy, European banks have redeposited the money with the ECB at low interest rates.”


    fasten your seat belts it is going to be a bumpy ride

  2. PDC

    I don’t like very much the “blip” thing… What does that supposed to mean? I think german model is basically sounder and more human then others. There is some room for loyalty between employers and employees, which allows for projectuality both within the public and the private sphere. Granted that, relying very much on exports as it now does, it has a potential weakness, but which economy model has not weaknesses? It is also true that Germany’s umbalanced exports are destabilizing for other countries, but this is basically the fault of a (world) system where a sort of specialization of countries (industrial & export oriented vs financially oriented ) has taken place. So yes, nothing lasts and german economy will sooner or later shrink, as a consequence of the shrinking of it’s customers…

    1. jake chase

      German “success” was a consequence of both what Germany did: sensibly organize its industrial machine, and what everyone else did: borrow and spend as much as possible. Now that the debt bubble has stopped expanding, which way do you suppose German exports will go?

      Or, they could force their banks write down (write off?) debts that will never be repaid anyhow, and put the whole machine back in motion. Where is Keynes when we need him?

  3. Bakasone

    Blip it will be. And oh dear! The Green New Deal that was supposed to make the country a model for eco-restructuring is dead! There’ll simply be no budget anymore for smart grids, solar power plants in the North African desert, e-mobility and all the other “visionary” stuff.

    Renewable energy companies, the only innovators in Germany over the past decade, are finished. Our photovoltaics start-ups just can’t compete with industry experts who know how to organize manufacturing processes efficiently.

    Don’t expect Germany to come back…

  4. Lafayette



    But has anything changed? I think not.

    The nature of German exports has not changed one iota. There are no new bright ideas, just the adept execution of Old Market Niches that happen to be Milk Cows.

    Why change a market-strategy that works so well?

    I know ten French hi-tech innovators, who, like Mr. Richter, moved to the US in order to start-up an innovative idea. Why?

    Because whether that idea is German or French or, even, Greek, the EU market is not receptive to New Toys until proven elsewhere. Then it plays copycat.


    No, not when a country has other priorities that, oddly, seem more important.

    I submit that placing more emphasis on protecting Social Justice is more important than having the next idea that will make some one or some few a megabuck. Such entrepreneurs will succeed in Europe even if they play copycat with an idea that comes from abroad – an outcome that has already been amply proven here.

    If the European countries got into their pitiful debt condition, it was because they chose to protect families from the destruction of employment by means of its safety-nets. They borrowed heavily to do so, which got them into the present debt-mess.


    To test New Ideas for products/services, there is no better marketplace than the US, which is truly homogeneous. Which means not only one-language, but also a common market attitude toward new products and services. And the will to easily change habits in order to accommodate them.

    That psychology is not yet inbred in Europe, which is chained to a reactionary attitude towards anything new, whether a product, a service or simply a new way of doing things.

    This reactionary attitude is most prevalent, I suggest, in Germany. It reared its ugly head recently as regards the European Central Bank (ECB) and the necessity for that entity to assume the financial responsibility for backing sovereign debt. That solution has been prevalent since the Japanese and Swedish debt-crisis for exactly the same reasons – an asset equity bubble that burst.


    The Germans went nonetheless ballistic as regards the proposition. The figured that is was simply printing money to efface bad-debt, which it is. But, they were afraid of the inflationary risk. In a European production environment that has oodles of idle capacity? That’s foolish.

    So, pray tell, how does one explain Germany’s risk-taking as regards exporting quality products and its inability to accept a practice that has been universally adopted as the Only Solution for excessive national bank debt?

    Go figure …

  5. Hans Suter

    I take exception to the notion of “German” in this context. German socialdemocrats (the probable winner of next elections) have a completely different take. And so do the “Greens”.For those who understand German here is a very interesting speech by former 92 year old chancellor Schmidt of last december, it’s about an hour;: http://www.youtube.com/watch?v=OYQxYuU6GwI

    1. PDC

      I’m taking this from Der Spiegel:
      “the government of then Chancellor Helmut Schmidt (SPD) behaved as if Germany were still in the midst of its economic miracle, spending far more than it took in. During Schmidt’s chancellorship, sovereign debt grew from €39 billion to €160 billion”

      mmm… if this is the alternative… doesn’t seem exactly reassuring

      1. Hans Suter

        mm ? That was 30 years back while Germany was in a bad slump with a decreasing GDP. Do you believe in expansionary austerity :-))

  6. Blissex


    In Real America that’s called stealing other people’s property also known as Communism: losers who would not be able to hold down a job get lots of free money from winners who can, and the jackbooted thugs of Big Government hold a gun to the head of companies (50% of salary) and taxpayers (25% of salary) to enable that robbery.

    In Real America it will never be acceptable to have strapping young bucks and welfare queens get their t-bone steaks and cadillacs paid for in that way. 75% of salary paid to people who business would get rather rid of as? That’s why Germany is a grim, poor Soviet tyranny like Denmark. Communism never worked and never will!


    1. jake chase

      In Real America we prefer genuflecting to Jack Welch for walking away with $1 billion after hollowing out GE and turning it from a manufacturing powerhouse into a tin horn usurer whose survial depends upon the Fed chowing down unlimited commercial paper. How are you doing on that CNBC investment advice?

    2. Lafayette


      Typical Rabid Right clap-trap with the usual accuracy of a Fox-News sound-bite.

      In Eurpope, it’s called Social Justice, or egalitarianism, to enhance your limited vocabulary. The free-market is a collective exercise of both Consumers and Suppliers, the latter of which consist of consumers.

      It is therefore of the best interest to suppliers that consumer propensity to spend be maintained – and if that takes, in periods of economic downturn, the government to assist in the process, then so much the better for Supplier company profit-levels.

      In this manner, businesses don’t have to downsize frantically in order to maintain cost controls, which only exacerbates the problem as those unemployed retrench drastically their spending.

      Of course, the Rabid Right has neither the intellectual capacity nor curiosity to think this far into the complexity of a Supply & Demand (supposedly) free market – which hasn’t existed in the US in more than four decades.

      In our hell-bent rush to “bigger is better”, we have consolidated far too many markets into oligopolies – thus reducing internal competition and instituting “sticky-pricing” by which the main market-share holders fix at their discretion the price-range employed.

      Your “real America” is a figment of your imagination.

      What is real, is the Super-PAC money spent to manipulate politicians in maintaining the status quo. It’s very, very profitable and simply enriches even further the 1%ers.

  7. Pete

    Well, so far Germany has lower unemployment, a stronger safety net, smaller social differences, far lower annual working hours, a positive net savings rate AND YET: far lower debt/GDP than the US.
    In other words, innovative or not, life for the average German is far better than for the average American (at least in economic terms).
    This is achieved without having the world’s default currency.

    So while it’s quite ok to criticize Germany, who exactly has done better in the West? Not the US.

    1. Susan the other

      I agree, nobody has done a better job than Germany of balancing out all the equity of social responsibility. It is true that Germany has used exports to achieve its budget. And everything is up for grabs now. That late-night BBC report, whether vetted by the BBC or not, implied that China was not going to import any more foreign (western) cars, etc. So Germany is scrambling. Good. The Germans will come up with a new and improved Mercedes Benz type Tata Nano. One that doesn’t blow up at the curb and turn into a bonfire of the vanities. And Germany can always produce for EU consumption. Tata might be challenged because China is planning to produce for China, no problem there. Clearly Germany will adapt. As it always does.

  8. Petey B.

    I vote not-a-blip. Germany has done a lot of things right in structuring its society, that here in the USA we screwed up. Their handling of the unemployed is better than ours. Their workers have a higher standard of living. The quality of their enterprises is better. They do have some immigration issues. They don’t have a housing bubble like us, due to the structure of laws having to do with property – read up on it! The 1990s were spent absorbing the economic mess of East Germany, which they seem to have done successfully.

    A lot of this can be described as socialism, done right, combined with industrial capitalism, also done right.

    Now obviously there is an un-sustainability factor, since their standard of living exceeds the rest of the world, if everyone copied their model, it would be impossible.

    I see 3 opposing trends. (1) German business leadership, from my limited experience, has in fact been wholeheartedly absorbing a generation of managers trained in the American MBA style. I.e., agressive risk-seekers. The quality of technology and business decisions will go down. (2) I think Germans have even more faith in their “system” than Americans. Potentially bad if trouble hits. (3) the China phenomenon. Much German industrial export goes to Asia. As China rapidly climbs the technology ladder they will displace German and even Japanese technology with domestic, and start exporting it themselves.

    But we sure can learn a lot from their success.

    1. Susan the other

      Feels true. Keep in mind that China is limited by the boundaries confronting all the industrialized nations. So China will have to improve, or wallow in its own misery of denial. Probably some of both. The world will demand sustainability. Sustainability, by the way, includes maintaining human civilization. Does this mean there will never be profit again? So non-profit is the future? Maybe.

      1. Petey B.

        regarding sustainability- I think sustainability, if it were achieved would involve (1) no more growth in population (2) no more growth in economic activity driven by ramping up resource consumption. (tech-driven growth still ok). This means less profit, but not no profit.

  9. tiebie66

    The frequent Germany-bashing-at-any-price pieces at first seemed very unfair (name, no, _name_ another country that has pursued socioeconomic policy as well over several decades), but now seem just plain ridiculous. Next, I hope, will be a yawn unless something truly insightful emerges.

    Take this paragraph, for example, that shows how to profit from both sides of the trade: “Throughout the 90s, following its reunification, Germany was the “sick man of Europe,” marked by growing unemployment, stagnation, and lacking innovation. …. But it did create a modern export-oriented industrial foundation with some unique features.” Only upon thinking about it, may one realize that the conclusion seems to be that unemployment, stagnation, and the lack of innovation produced a modern industrial foundation, so skilfully has the transition been effected. Thus one moves from unemployment and stagnation (bad) to a high quality export economy (bad).

    ‘Fortunately’, there’s more: after delineating how Germany responded to previous serious challenges, by putting shoulder to the wheel, that is, rather than cooking the books (ante- or post-austerity Greece anyone? ante- or post-austerity Anywhere-else anyone?), the expectation of failure and attribution of blame is conjured up due to the implied faulty export-oriented “German success recipe”.

    But the real “German success recipe” as I perceive it, reinforced by the now various attempts at disparagement, is good judgment and hard work. I would expect Germany, when faced with a problematic export-driven economic model, to find a solution; there is plenty of precedent for their ability to do so.

    But my own judgment can be mistaken, and a few pointers as to where I took wrong turns would be welcomed, thanks.

    1. Foppe

      Germany could’ve simultaneously chosen not to create the Eurozone post-hast, given that they knew best of all how difficult economic integration is. (They could’ve done so even post-1992.)

      1. Petey B.

        I’m thinking the EU/EMU was created to balance the power of the US. Not a bad idea. If the ECB acts exactly as the FED does, Euroland won’t be any worse off than we are.

        1. Jim

          The ECB can’t act as the Fed does. The Fed is the central bankd of the United States of America.

          There is no United States of Europe.

          Perhaps if southern European countries agree to become states, with the federal government based in Berlin, with Germany as the official language of the United States of Europe, then you can have the ECB act as the Fed.

          Question is, would a majority of Spanish and Greeks accept those terms?

  10. sleeper

    There is a missing point in these discussions of Germany’s “Blip” –

    A goodly portion of the growth of Germany’s multinationals is due to a system of give backs or bribes.

    This is well established in the case of Siemens especially telecom equipment and it is a fact at a large manufacturer of weaving equipment.

    Why not do business with a company well versed in the European way of doing business ? There are great rewards for the supplier i.e. much lower price pressure from purchasers and plenty of cash to spread around amongst the customers.

    But of course you’ll never hear this from MSM or economists.

    These economies are driven at least in part by flow of bribes or givebacks.

    1. PDC

      Can you provide evidence that bribes are more commonly found in connection with german firms then – say – US firms?

      1. Nathanael

        Seriously, look up the history of Siemens.

        I suggest that the reason US firms have less bribery is that the execs are so untrustworthy that they don’t stay bribed. When you bribe someone, they just walk off with the money and don’t give you what you want. This has tended to discourage bribery.

  11. Fiver

    Agree with tiebie66 that this portrayal of Germany has that country moving from being a “loser” for daring to have the courage, determination and willingness to share sacrifice to successfully re-unify to being pilloried for being a “loser” because it quite legitimately out-performed its competition.

    Let’s try to keep in mind that, unlike the immense treasure chest of resources the US had (and still has) to work with, countries like Japan, Germany, the UK and numerous others are exceptionally resource-poor – they HAVE to run surpluses. Now, which is more worthy of respect and emulation as a model, the high-quality, low-energy consumption, goods-producing economies of Japan and Germany, or the financial Ponzi economy of the UK? Missed out on the “new economy”? You mean the “service” economy wherein half the population tees up golf balls for the other half?

    Nor let us forget that the US is now hell-bent on taking as much business away from those economies as possible, and has shown no compunction as to waging financial war in order to do so on top of its natural advantages.

    The US is still 25% richer per capita than Germany or Japan even after having completely squandered unbelievable quantities of resources on Empire and a 30-year consumption binge. The US has written all the rules for the global economy for 70 years, yet still views any success by others as a curious mixture of threat and something to be scoffed at.

    1. jonboinAR

      View Japaneses/German or other foreign nations’ successes as a “curious mixture of threat and something to be scoffed at”? I remember in the early ’80’s or so when the last American manufacturer of televisions, Zenith, was purchased by the Japanese. The Japanese through the years systematically excluded American vehicles while we welcomed there’s. Now China, with the help of our traitorous corporations, has successfully stripped the US of much of what remains of its manufacturing base. (I don’t know anything about Germany and our trade issues there.) These countries you play your little violin for are trading rivals, pal. I’ve seen no good intentions toward us coming from them. They practice nakedly predatory trading practices, like Walmart might. Spare me the “curious threat” putdown of our views toward them. They ARE economic rivals. We need to recognize that a lot more and act accordingly. I’m pretty sure they see us as fools.

      1. Foppe

        Not to spoil your parade, but it is American/Western financiers/investors/companies investing in and moving to China, not China buying up those companies.

        1. jonboinAR

          Yes. I allowed for that in my reference to our “traitorous corporations.” My point is that I don’t believe I’m wrong or that it’s paranoid to think we need to treat other nation’s economies, at least to a good degree, as the competition, especially as regards manufacturing. I believe we are behaving foolishly when we fail to retaliate againt protectionism and piracy.

          1. jonboinAR

            …and I don’t know how we need to handle it, what we’ve done in the past that worked, or what, but we need to punish somehow our own corporations who ship all of our jobs overseas.

            My extremely rough idea is this: Retaliate against employing overseas slave labor by imposing tariffs
            1)inversely proportional to what they pay labor. If they pay them something like 50% what we pay ours, no tariff on that. Fair? Allows that it may be impractical for them to completely match our wage.
            2) Tariff their failure to apply OUR environmental standards as protection for our companies that must.

            They say we’re interfering with them? Tough beans. We are not obliged to trade with them.

            If they pay their workers to be able to buy things, and IF they don’t apply protectionism against us, everyone benefits, I think.

            We are in the drivers seat as I think they are more compelled to trade with us at this point than us with them. Again, who can fault us when everyone benefits?

        1. jonboinAR

          Beautiful response, you stupid, arrogant jerk.
          There. How’s that? Shall we continue our intelligent conversation?

          1. Fiver

            I believe I let you off lightly. I have had to listen to utterly myopic, “WE must have it all” fools like you all of my life:


            The US is economically twice the size of Japan and Germany combined. In EVERY other respect, i.e., militarily, politically, natural resources, world reserve currency, technological prowess, global financial structure, YOU NAME IT in terms of ADVANTAGE, the US is orders of magnitude stronger. The US has soaked the rest of the world for more wealth than all previous empires combined many times over.

            The problems the US suffers are ENTIRELY self-inflicted. It remains by light years the wealthiest nation on earth. Nobody else has forced it to savage its own disadvantaged. Nobody else has held a gun to its head insisting it become the first globally dominant elite of sewer rats and insane war criminals. Nobody else harbors

          2. Fiver

            …the notion that ITS version of civilization ought to dominate the entire planet, that NOBODY else has the right to choose an independent course of action.

            Don’t give me any of your nauseating crap about how hard done by the US is when it writes the rules everyone must play by then, because it simply cannot control its own greed, fails in the ensuing contest, cannot accept failure, and CRUSHES its opposition EVERY TIME OUT since the Continent was first stolen from Native Americans. You wonder why the world has a problem with US hegemony? Look inside your fat head.

          3. jonboinAR

            I’m sorry I insulted you. Now my stupid words are here forever and I regret that. As to my nationally competitive point of view regarding trade and industry, I’ll have to look into that more, but please don’t just dismiss it as idiotic. I fail to see why we are morally obligated to put up with blatant protectionist policies against us regarding industry, or why a certain amount of paranoia in that area should be regarded as “curious”, ie, I take you to mean somehow base or perverse.

            I understand that we came to the point of near domination of industry prior to WWII partly through protectionist policies. I’m sorry, but just because we sucked England dry of industry (saying that we did), doesn’t make me willing to let the same happen to us. We’ve been distracted by our empire, same as Great Britain was. We have to take care of BUSINESS (ours). I’m willing to help the other nations grow, to a point that doesn’t include allowing our competiveness to be demolished.

        2. jonboinAR

          For example, explain to me (L’Idiot ;-)), if you have the time, how it is we’re engaging in financial war against economies such as Germany. I’m not doubting you. I truly don’t know.

          1. Fiver

            Just saw your reply.

            I am if anything more sorry than you. My mouth got way ahead of my brain, and I very much regret it. My apologies.

            This is an excellent site. I encourage you to read all the comments as well as the many excellent pieces presented. My own views are definitely in the minority in terms of how starkly I frame the problems, but I’ve spent decades studying global economic/military/technological/environmental etc., history and events and conclude we have very little time left to make some very tough decisions or we’ll lose control of our destinies entirely.

            Again, sorry for the short fuse.

  12. dearieme

    Are there straws in the wind? The reputation for reliabilty of German cars seems to be heading downwards.

    1. jake chase

      The only problem with German cars is you cannot keep a recent one more than six years. The cost of fixing them has become insane, and nobody can diagnose a problem. The computer diagnostics only tell you what is broken and ignore what is likely to break next week.

      One of the largest local BMW dealers told me he makes nothing selling the cars. All the profit is in warranty repairs paid by the manufacturer. Of course, he could be fibbing.

  13. Lafayette


    Rick Santorum pleases some people with his holier-than-thou preacher-like speechifying. Marx called religion pap for the masses, because he knew the masses would not think for themselves so ingrained had they become with religious doctrine.

    But all that was typical of an Agrarian Society, run by an aristocracy for centuries that began to erode in the latter half of the 19th century.

    The peasants had been kept dumb-as-doornails because established Churches would not allow them to be taught how to read. The great advance of modern times has been the advent of Public Education. Supposedly, we know how to read and write. But do we know how to think?

    We, as a nation, should have evolved to a point where we can discern falsehood from fact and truth from doctrine – this latter being not more than a codification of beliefs that shuts the door to an inquisitive mind.

    We should have evolved, but, we the sheeple, have not.

    There are far too many of us who, searching for their belief in something/anything, hook onto to the artful proselytizing the intent of which is to make proselytizers rich as Croesus. These are our modern-day artful-dodgers.

    Artful Dodger is a character in the Charles Dickens novel Oliver Twist. Dodger is a pickpocket, so called for his skill and cunning in that respect. Today’s purveyors of religion try to pick our brains with their doctrines.


    If one can market just-about-anything in the US, then why not religion? Given the gullibility of people who are insufficiently educated, it works like a charm. And if they can leverage that art into political persuasion, then, why not again?

    Rick will have more than his 15 minutes of celebrity status. But heaven help us if he ever gets near to the levers of power. Look at what just a touch of Biblical Perversion did to Dubya.

    Do we really want that idiocy all over again? Well, it CAN happen in this country. Nobody thought the T-Party had a chance in hell of infesting the HofR.

    And yet …

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