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Marsh on Monday
March 22, 2010, 3:56 a.m. EDT · Recommend (2) · Post:
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By David Marsh, MarketWatch
LONDON (MarketWatch) -- As recent events in international financial markets demonstrate, there are striking monetary parallels between China and Germany.
I came to the conclusion in August last year that the real G2 running the world economy was not Chimerica but Chimany, reflecting the central role of the two major surplus countries, China and Germany, in their respective currency blocs. (For the Chinese, this represents the dollar zone, for the Germans, the euro area.) Nothing in the last six months has occurred to make me change my mind. Read column on the "Chimany alliance."
In both cases, "Chimany" seems to be having a good end-of-recession.
Cairn Energy, Air Berlin report earnings. European leaders meet in Brussels, Chancellor unveils U.K. budget.
Domestic industry is buoyed up by near-insatiable desire to buy German or Chinese products on the part of the international clientele. Export success however, brings Germany and China into risky economic dependence -- if not downright vulnerability -- vis-à-vis major trading partners.
The two countries are good at fighting, and they will battle against these perceived disadvantages in a variety of ways. We've seen plenty of examples lately of a war of words on various aspects of the two countries' surpluses -- ranging from the increasingly acrimonious debate on the alleged undervaluation of the yuan, up to German Finance Minister Wolfgang Schaeuble's go-it-alone idea of a European Monetary Fund.
Given the variety and intensity of their challenges, it would not be surprising if the two countries would increasingly seek to join forces in some fields.
Despite obvious differences, the similarities are overwhelming. According to the International Monetary Fund, Germany this year will generate a current account surplus of $120 billion. Despite the popularity of the German export machine in the emerging economies, the lion's share of exports still goes to Europe. China is expected to record a current account surplus of $450 billion, and the main destination for Chinese exports is America.
The Chinese have now taken over the Germans' previously No 1 position in the world export league. But this brings drawbacks as well as benefits. The overall consequences for the recovery of the international economy are anything but beneficial.
At the political level, "Chimany" is regularly denounced by its trading partners (in the case of Germany, by the other Europeans, for the Chinese, by the Americas) for allegedly not doing enough to stimulate internal demand and thus for economic recovery in the respective economic areas.
In various ways their partners are telling two countries to make exports more difficult by raising their prices -- in the case of China, through a strong appreciation of the yuan, in Germany (since exchange rates are fixed in the euro area) through a boost in wages. In both cases, to make ends meet in this spiral of vendor credit, increasingly onerous financing is necessary -- and a burden for both creditors and debtors.
China is forced to acquire every growing volumes of dollars that seem ever more prone to depreciation. American Congressmen are stepping up a campaign for the yuan to rise, the very step that would seal the fate of the devalued dollars in the People's Bank reserves.
The French, meanwhile, are telling the Germans to put their hands into their pockets to bail out errant southern states in the euro area. In both cases disputes will probably accelerate in coming months.
But at least such arguments crystallize essential realities on interdependence. Every trade surplus leads to a corresponding deficit somewhere else. And the vendors have to finance the purchasers.
The German and Chinese are united by common awareness that help for their trading partners -- even though they may not like doling it out -- is also a form of self-help.
David Marsh is chairman of London and Oxford Capital Markets.
A world of possibilities awaits Rush Limbaugh, and others, fleeing Obamacare.
10:36 a.m. Today10:36 a.m. March 22, 2010 | Comments: 180
- yang | 11:28 p.m. March 21, 2010
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