Come Play the Game

You should never, EVER, enter into a fixed exchange rate system that has Germany in it: Germany will outcompete you and end up with the boom and a huge surplus, and you will end up with a huge deficit and massive unemployment. That is the Münchau Dictum, pronounced not long ago by the namesake associate editor at the Financial Times.

Looking back on the European Exchange Rate Mechanism or the euro, Mr Münchau may well be right. Under the ERM, Germany’s solid—and solidly competitive—currency ended up posing a strong challenge to the other member currencies, which had to be regularly devalued to stay in the game; under the euro, Germany is enjoying a solid economic performance with huge surpluses, against weak showings and deficits among the other euro countries.

But, on second thoughts, that would be akin to saying that no football club should ever enter into a championship that has FC Barcelona in it: they will outcompete you, walk away with the cup, and you will limp home with a bag full of goals.

And yet, every year you see a full list of hopefuls that enter, say, the Champions League with the best intentions of unseating the überclub. If anything, it keeps them fit and gives them a goal to aspire to.

The attitude in the national economic arena is a bit different, however, to judge by the choir of complaints about Germany’s ‘unfair advantages’ and its huge lead in the performance league. Unable to devalue the currency to regain competitiveness, its trading partners are asking Germany to do them the favour of, well, yes, becoming a bit less competitive, if you please. Something like chaining an iron ball to the legs of its best players, perhaps?

As it turns out, Germany is already doing quite a bit to dent its competitiveness, and not because anyone asked it to. The introduction of the minimum wage is one such measure, as it will cost some jobs and raise some costs. The roll-back of the pensionable age from 67 to 63 for certain cases is another. But both pale next to the country’s hugely ill-conceived energy policy. The Energiewende is not only absurdly expensive: it is also completely useless in terms of helping the climate (Germany’s carbon dioxide emissions goal will be missed by a whopping 40% by 2020), and has pushed up energy prices so high that many industries need special exceptions to stay in business—or to stay in the country at all. That, in turn, brings complaints from the EU’S competition directorate, which considers such exceptions market-distorting.

Shutting down its nuclear plants before alternative energy sources are in place is plainly silly, and dangerous: making yourself dependent on Russia can shackle you in more than one way, as the Ukraine crisis has made clear. Seen in this light, it was very short-sighted of Germany to withdraw support for the Nabucco gas pipeline that bypassed Russia and plump instead for the Nord Stream one, which effectively hands the spigot to a large portion of Germany’s energy lifeline to one single supplier.

This, in turn, puts pressure on Germany’s decision-makers when it comes to imposing sanctions on Russia for its role in the Ukrainian crisis. After all, 36% of Germany’s gas consumption is met by imports from Russia.

But, if you think about it, gas accounts for 11% of Germany’s energy consumption. That means that Russian gas accounts for less than 4% of the overall energy consumption. By comparison, the nuclear plants that Germany shut down in the immediate aftermath of the Fukushima disaster covered around 7% of the country’s energy needs—a proportion of shut-down plants that exceeded even Japan’s at that time.

Why should that be so? Well, it’s all down to religion. There are three main religions in Germany, two small ones and one large one. Catholicism and Protestantism are the small ones, with about 30% each. The large one, with more than 90%, is the No-Nuke Church. On top of that, No-Nukism sports by far the most ardent followers. There is nothing that stirs more visceral reactions in Germany than anything with the word “nuclear” in it.

So, Germany’s contenders in the economic sweepstakes should stop worrying: Germany is already doing quite a bit to hobble its competitiveness.

But still, they should also hone their own competitiveness. In the end, that's what pays off: the alpha team in the Champions League is now Bayern München, which, by doggedly working at it, finally managed to unseat its old nemesis.