November 28, 2020

Europe’s Economic Powerhouse Drifts East

With large parts of Europe still in an economic rut and struggling to cope with a debt crisis, Germany is increasingly deploying its money and energy outside the euro zone to fuel its robust growth.

The shift in focus, while still in its early stages, could have profound economic and political implications because it comes at a critical time when the rest of Europe is counting on Germany to continue its traditional role as the locomotive of the Continent’s economy.

German companies, instead of concentrating their investment overwhelmingly on countries like France and Italy, are sending a growing proportion of their euros to places like Poland, Russia, Brazil and especially China, which is already the largest market for Volkswagen and could soon be for Mercedes and BMW.

The German government is following suit, committing more diplomatic resources to its growing trade partners, particularly China, whose prime minister, Wen Jiabao, brought an entourage of 13 ministers and 300 managers when he visited Chancellor Angela Merkel of Germany last month.

President Dmitri A. Medvedev of Russia brought a similar entourage with him Monday to Hanover for annual German-Russian consultations, including Alexander Medvedev, deputy chief executive of Gazprom.

The economic shift is already having profound consequences inside Europe. As Germany becomes less dependent on euro zone markets, there are signs that it is becoming stricter with its ailing partners, like Greece, Italy and Portugal, adding to the pressures already straining European unity.

“It reinforces a shift that we have seen in recent years for Germany to become rather more focused on its own national interests rather than sacrificing for some defined European interest,” said Kevin Featherstone, an expert on E.U. politics at the London School of Economics. “Germany is not giving up on Europe, but it is certainly frustrated.”

German politics are in line with the interests of German businesses like Fresenius, a health care company in Bad Homburg, near Frankfurt. Last year, Fresenius recorded a sales increase in Asia of 20 percent, to €1.3 billion, or $1.8 billion. That compared with its sales in Europe of €6.5 billion, up 8 percent.

Fresenius’s chief executive, Mark Schneider, said he expected the trend to continue, noting that China was trying to create a universal health care system that would ensure its people access to kidney dialysis and infusion therapies — the sort of products that Fresenius provides.

Germany, of course, remains deeply entwined with the euro zone, which is still its largest source of trade by far. But Western Europe’s share in the German pie is shrinking as companies focus new investment on more vibrant markets.

“I’m not sure I would call Germany the locomotive” for Europe anymore, said Marc Lhermitte, a partner at the consulting firm Ernst Young. “It’s an engine.”

Mr. Lhermitte was one of the directors of a study in May by the firm that looked at trends in cross-border investment around the world.

Last year, the euro area’s share of German exports fell to 41 percent from 43 percent in 2008, while Asia’s share rose to 16 percent from 12 percent, according to Bundesbank figures. During the same period, exports to Asia rose by €28 billion, while exports to the euro area fell by the same amount.

Fresenius is one of many companies that reflect the trend. Corporate investment in Western Europe is still rising in absolute terms, said Mr. Schneider, but “capital spending and employment is not rising as much as we are seeing in emerging markets.”

There are also signs that Germany’s prosperity is no longer helping the rest of Europe the way it did a few years ago. On the contrary, the rest of Europe, particularly its southern half, is falling further behind as the European Union struggles to deal with the sovereign debt crisis.

The Italian economy, for example, is no longer cruising in Germany’s slipsteam.

Article source: http://www.nytimes.com/2011/07/19/business/global/Germany-Europes-Powerhouse-Drifts-East.html?partner=rss&emc=rss

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