Germany puts economy ahead of ideology

By John Ross Source:Global Times Published: 2012-9-3 19:35:03

German Chancellor Angela Merkel's recent visit to China was seen in both countries as a major event marking a policy shift.

As Der Spiegel magazine noted, "Back in 2007, German Chancellor Angela Merkel was happy to provoke the Chinese leadership by receiving the Dalai Lama in Berlin, a gesture that led to an icy period in German-Chinese relations. [...] By traveling to China with an entourage of cabinet ministers and industry representatives, Merkel was eager to show how much Berlin values its relation to Beijing."

The Wall Street Journal noted German officials termed ties with China a "special relationship," a term normally reserved for explicit allies. Similar changes are taking place across much of Europe.

There is no mystery regarding the reasons for Europe's changing relations with China. China is crucial for the economic choices facing Germany.

Exports are decisive for Germany's economy, accounting for over 50 percent of GDP.  Traditionally, Germany relied on exports to Europe, with 59 percent of its exports going to the EU. But with the EU in recession, Germany has to pay increased attention to non-European trade partners.

The US is an even more stagnant export market than the EU. From 2005 to 2011, Germany's exports to the US rose by only 6 percent compared to 24 percent to the EU. In contrast, rapidly expanding BRIC economies are crucial for Germany.

China is easily the most important of these trade partners. From 2005 to 2011, German exports to China rose by 206 percent, with China overtaking the US to become Germany's largest non-European trade partner. Germany's trade turnover in 2011 with China was 144 billion euros ($181 billion) versus 122 billion with the US.

Sino-German trade is particularly beneficial as both countries have complimentary economic structures. Germany exports high-tech capital equipment required to modernize China's economy.

China exports medium technology capital goods, which Germany's high wage economy can no longer produce economically, and competitively priced consumer goods.

However until recently, Germany's political rhetoric hindered its rational economic choices.

In principle this conflict between Germany's economic interests and its foreign policy is no different to that facing Japan, which has also damaged its economy by implementing anti-China political policies at the behest of US administrations.

But the relation of forces and issues in Europe are different to those in Asia and more favorable to China.

Strategically Germany is committed to the euro as it cements most of Europe into a stable trading unit in which Germany is the dominant partner. In contrast many in the US would like the euro to collapse as they see it as challenging the dollar's international dominance.

Therefore, while Germany negotiates toughly in the EU over individual issues, it has been prepared to pay a significant price to keep the euro intact. But Germany will welcome help in taking the economic strain of stabilizing the euro.

The obvious partner is a financially strong China, which also welcomes the euro. Both short-term trade issues and strategic questions therefore lead Germany to seek the best possible relations with China, which requires backing off political stances China dislikes.

A similar shift has taken place across large parts of Europe. For example, in 2008 France's then president Nicolas Sarkozy was discussing boycotting the opening ceremony of the Beijing Olympic Games.

But in 2010 in a different economic climate, when Chinese President Hu Jintao visited France, Sarkozy went beyond diplomatic protocol by personally meeting him at the airport.

There should be no exaggeration.

Voices hostile to China remain strong and Merkel's approach during her recent visit was attacked by pro-US administration circles in Germany. But whereas in East Asia the Obama administration has succeeded in stirring up anti-China sentiment, in Europe Markel's visit highlights a shift in directions favorable to China.

The author is a visiting professor at Antai College of Economics and Management of Shanghai Jiao Tong University.

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