The German Industry and the euro

There seems to be a division among the representatives of the German industry. While representatives of German family businesses (Familienunternehmen) claim for more regulatory rules and less integration for the eurozone, representatives of the DAX (Deutscher Aktien IndeX) and in particular the Federation of German industry (BDI) generally regrouping export-orientated enterprises defend the common currency and more integration. Nevertheless, claims from the Familienunternehmen are not backed by official statistics on exports activities.

The Wirtschaftswoche writes on 1 June about the two different positions among representatives of German industries in regard to the future of the eurozone. On the one hand, principals of most DAX enterprises are generally aware of the benefits of the euro. The larger and the more export orientated the enterprise is, the clearer is its defense of the euro.  The chairman of Audi, Rupert Stadler, says “There is no alternative to the euro. Germany benefits from the monetary union so we must do everything in order to keep the single currency strong.”

On the other hand, German Family Businesses and in particular the association Die Familienunternehmen sees the future of the euro from a different point of view. Lutz Goebel, president of Die Familienunternehmen, states that “Better a miserable end than endless misery “in regard to a possible GREXIT.  A necessary consequence of the crisis, according to Goebel is that “Europe does not need a centralised economic government but an economic system with clear regulatory principles (Ordnungpolitik).”

The Alliance of Jena, created in 2008 on the occasion of the jubilee of 60 years “Marktwirtschaft” and representing smaller business?, calls for stronger regulatory guidance in Europe instead of economic governance. They published on 21 June 2012 a call on the Frankfurter Allgemeine Zeitung, in which they denounce regulatory failures in the EMU due to too weak monetary and fiscal policy commitments. Moreover, the EMU was suffering from the beginning of two fundamental design flaws, namely the inclusion of Member States which do not fulfill the conditions required for membership and a non-credible regulatory framework. The first design flaw cannot be corrected anymore: while it was easy to join the eurozone, it has become now difficult to leave without significant costs and side-effects. However, the second design flaw can and must be urgently corrected and a regulatory framework should contain certain rules such as a mandatory balancing of structural budgets modeled after the German or the Swiss debt brake. However, neither the EU nor individual Member States should provide specific guidelines on how other democratic countries should reach this objective and the ECB should return to its original mandate which consists uniquely in ensuring price stability.

Recently, the President of the main German industry association BDI, Hans-Peter Keitel reacted to this position by writing a letter to the most important German companies and the Länder where he expresses his support to Angela Merkel and her EU policies. According to Handelsblatt, Keitel says that “the assurance of the monetary union in the long run is of elementary interest to each of us” implying that one should not call for GREXIT.  
Keitel supports further political integration in the EU. The crisis has shown that a “common currency policy needs a mutualisation of important elements of economic and financial policies.”

After the EU summit last week, BDI representatives express again their support to the Chancellor’s EU policies by underlining certain conditions. BDI Chief Executive Markus Kerber said to the Handelsblatt that there will be no financial aid without structural reforms.  “The Federal government sticks to its philosophy: no service without a service.” The reason for his position is the slow implantation of structural reforms in the countries under assistance: Kerber has almost the impression that “the pace of reforms declines”. Moreover, Kerber defines conditions regarding the summit decisions: the EU banking supervision must be truly independent and there must be strict conditions for the direct recapitalisation of banks by the ESM and all States have to agree with these conditions. Kerber considers it as essential to guarantee the congruence of accountability and control. Propping up banks needs to lead to a transfer of ownership of the respective institute to the supporting party. Moreover, more sovereignty should be transferred. For instance, Kerber thinks that “the setting of limits on national borrowing would be a step in the right direction.”

What are the main differences between the two positions according to the Handelsblatt?

Greek exit: An exit of Greece or another country of the eurozone is beyond question for the BDI, while the representatives of the Family Businesses favour a Greek exit. The so-called “Berliner Erklärung”, signed by 100 middle class firms called officially for a Greek exit and also for the abolition of all additional aid for Greece.

Eurobonds: The BDI position regarding Eurobonds is not univocal. They agree with Angela Merkel in a sense that they consider the introduction of Eurobonds as a final step after a long process of integration. The Family Businesses, on the other hand, are clearly against the introduction of Eurobonds

ESM and Fiscal pact: While from the point of view of the BDI, the ESM is an appropriate mean to tackle the debt crisis, Burn-Hagen Hennerkes of Family Businesses, says that the ESM is not an appropriate mean and that it constitutes a “Black Box” due to its far reaching powers of immunity. They suggest the Bundestag deputies to not approve it. Regarding the fiscal pact, the BDI considers it as a further step towards financial stability, while the Family Businesses see the pact rather critical.

Role of the ECB: Six months ago, Keitel was still vehemently against the purchasing of government bonds on the secondary market, but this position seems to weaken given the international pressure on Germany. The Family Businesses are clearly against the purchase of bonds and any expansive monetary policy of the ECB and want the ECB to return to its original mandate.

Can these two positions be confirmed by official statistics in regard to export activities? On the one hand, the position of the BDI can be confirmed by official export statistics for German large industry. Consider, for example, the German chemical industry that, according to the BDI Aussenwirtschaftsreport 05/2011, exported about EUR 142 billion in 2010 with an export quota of about 80% and an export surplus of about EUR 40 billion. However, the exports of the German Familienunternehmen do not seem to be negligible enough to be able to confirm their position.  According to a 2011 BDI survey among German Familienunternehmen, 81.4% of the participating companies are active in both purchasing intermediate goods from foreign contractors and selling services and goods to foreign clients. Only a small percentage out of them is internationally active uniquely on the supply side (5.9%) or on the demand side (7.8%). 98% out of the Familienunternehmen, who sell goods and services abroad, are active in the export business and the export of products and service is the main form of foreign businesses. The Familienunternehmen active in the industrial sector have the highest export quota of around 45%.