Today’s German IFO was out and it was not as bad as was thought. And right now it would seem that the Germans don’t mind the higher Euro. It galls me that the German commentator said the reason why the Germans don’t mind is because they hedged properly, and others did not. The German CNBC commentator said the problem with AirBus is that they hedged incorrectly at 1.35, and thus their fault.
Well CNBC and traders not so quick! (It is so sad that this information is lost.) France has a real problem, and Germany does not because the Germans outsourced. Germany has outsourced most of its labor intensive work to places like the Czech Republic, and Poland. These other places are much cheaper than Euro priced lands. So what happens is that the most expensive component of a product is priced at a fraction of what it would be in Euro land. Thus an increase of the Euro by 20% is not going to matter because labor costs are so cheap. As a reference the Czech and Polish currencies have been holding steady with the Euro.
The French, and this is why Sarkozy is complaining, did not outsource. Sarkozy is not complaining by the lack of out-sourcing. Sarkozy is complaining because they have a very different set of circumstances than Germany. When CNBC commentators blame AirBus and Sarkozy what they are saying is, "gee you French are stupid that you did not close factories and move jobs to other countries." When German corporations say, "oh we hedged" they are saying "we outsourced and we have so cheap wages that the Euro could appreciate to 2.00 without us caring."
What I see is America late 1990’s. Remember those times folks? That’s when outsourcing became in vogue, the dollar was very strong and productivity was high (due to outsourcing). Now look how America is paying for it. A falling dollar because at the end of the day all that America can do is write little paper IOU’s. The same is happening in Germany. Even though Germany is a huge exporter, most of its products are built outside of Germany. Thus Germany is writing little IOU’s, and in about a decade I am sure Euroland will face the exact same problem as America.