If Americans are in shock over the economic plight that the collapse of the housing bubble has wrought, Germans are simply baffled. In their view, they seem to have done everything right—they have a high savings rate, a solid manufacturing base and no exuberance in their real-estate market, while profligate Americans binge-spent their way to illusory growth. Yet the crisis has hit Germany much harder than America—its GDP shrunk 2.1 percent in the fourth quarter of 2008, compared to minus 1.6 percent in the U.S., and the 2009 forecast is grimmer—minus 4 percent in Germany versus 2 percent in the U.S.
The problem is that Germany is actually a lot like China. Its own conservative position as an export-driven surplus nation threatens to be its undoing, because it means other nations must act as a locomotive to pull Germany along. When they slow, Germany slows even more.
There's actually a word for the model—Exportweltmeister, or world champion exporter. America was one back in the 1930s, notes Beijing University professor Michael Pettis, just as China and Germany are today, which is one reason it took longer for America to recover from the Depression than much of Europe.
Trade protectionism prolonged the agony then, and threatens to do so again today. In the short term, for Germany to recover, it must do all it can to keep trade flowing. Longer term, it must liberalize its still-calcified consumer service sector.