#hastatLacina! The Kindersoldat and the Eurozone crisis
On these pages we have often had fun observing the village fair tricks used by "graduate" economists to mystify the role of the Chinese economy in the dynamics of the world economy. It has always gone badly for the poor "Bocconi boys" here, because the Chinese economy, together with the debt dynamics in developing countries (and therefore in European countries, for the reasons explained by De Grauwe here ), has been one of the my fields of specialization (for example here ).
One of the most popular mystifications at the time when I was writing my papers on China consisted of presenting the balance of payments balances of China and the United States in relation to their respective gross domestic products. Since China's GDP was significantly lower than that of the United States, adopting this metric an alarming picture emerged:
from which it seemed that China, with its monstrous surplus, was the prime mover of global imbalances. "#hastatoLacina!", brayed colleagues everywhere who were uncomfortable with quantitative economics.
In reality, as I explained to you here three years ago , this representation was artfully distorted. To analyze the role of the three poles of the global economy (USA, China, EU) on global balance of payments imbalances, a common metric had to be used, and the respective GDPs were not for the obvious reason that they were different!
A more truthful picture emerged by reporting the data in billions of dollars:
(or, if desired, as a percentage of world GDP). From this representation it was seen that the major and previous imbalance was the deficit of the imperial power (as is also correct, given that by definition and by virtue of its role it structurally imports capital).
Today, a false narrative of the Eurozone crisis is circulating that is partly based on the same kind of artifice. Before explaining it to you, I remind you that we had the correct narrative from the beginning (here and) from De Grauwe:
( it was the year 2012 ). In De Grauwe there was almost everything, except what only we saw at the time, that is, that this asymmetry of the Eurozone (such that an internal devaluation – wage cut – was imposed on weak countries instead of practicing an internal revaluation – increase of public investments – in strong countries) was not a zero-sum game, but a negative-sum one. In short, that story which in 2011 on the manifesto I expressed as " Germany will saw off the branch on which it is sitting ", and which in 2013 I expressed thus in what is now my Commission in the Chamber.
In the meantime, the piece that De Grauwe was missing was added by Draghi (we don't need anything, President, we'll let you know, we'll call…):
( it was the year 2024 ).
I remind myself that "domestic demand" is a component of GDP and that supply (productivity) depends on demand, but we will focus on this calmly another time. What I want to highlight is that even the major economists, both in terms of scientific capacity (De Grauwe) and in terms of institutional path (Draghi), when they did not support the thesis of this blog from the beginning, were nevertheless forced to follow it harm done, because, I remind you, the thesis of this blog is very banal ECON102.
Well.
Faced with such an incontrovertible narrative, as on 28 April 1945 it was incontrovertible that Chuikov was near the Belle-Alliance (now Mehring) Platz in Berlin, the regime's response is, inevitably, the usual one:
deploy the Kindersoldat, send them to crash into the Russian tanks, after the generalissimi have entrenched themselves in the bunker of a truth that is as posthumous as it is incontrovertible.
So things like this happen, where some beardless people want to convince us that the blame for the Eurozone crisis was, listen, listen!, on the cost of energy (it goes without saying that German industrial production had been in free fall since 2017, that is, for four years before the energy crisis: what do they know about children who were eight years old at the time!), but above all about China! What we want to insinuate is the usual lie denied here in ancient times, dealing with a colleague as fascinating as he is distracted : that according to which the virtuous countries (Germany) were net exporters towards China, which therefore would have supported their growth , but recently China would have managed to reverse the situation, sending Germany into deficit and causing the slowdown of its and our economy.
To prove this foolish heroic assertion, the toy soldiers, instead of Panzerfaust , are equipped with graphics like this:
from which the reader should draw a suggestion: since German (or European) imports from China have increased, and Chinese imports from Germany, i.e. German exports to China, have decreased, Germany would have gone from a situation of trade surplus in regards China to a trade deficit situation, losing the stimulus deriving from Chinese foreign demand. I am obviously referring to the two lower graphs: in the two upper graphs the same thing is suggested, with reference to the entire Eurozone: this too, it is suggested, is suffering having lost the "driving force" of the surplus towards China (i.e. of Chinese imports of our products).
Well.
However, things are not like this, and the trick is always the same: that of using two different metrics (the respective national GDPs), aggravated by that of using two different vertical scales. From here on, I will focus on the German case, for simplicity's sake, because it is Germany that is in a bad situation, and because the dynamics of the Eurozone are largely determined by the German ones.
And therefore, I say: if you are really interested in understanding what the trend of trade between Germany and China was, why not do what I did (or did?) in 2012 when responding to my kind colleague Reichlin, and not take sic et simpliciter the bilateral trade balance between the two countries? It's not very difficult, the data is here ! Just to clarify ideas, at the time the situation was this:
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(as you may remember from the aforementioned post ). What the heroic fighters want you to understand is that after this evident deficit the situation would have been reversed twice: once to bring Germany into a surplus of tens of billions of dollars (or euros) in net exports to China, and once second to push it back into deficit, causing its economy to cool.
But did it go like this?
Meanwhile, let's replicate the 2012 graph with the data available in 2025:
just to make sure we are talking about the same thing (and the answer is yes, with the only difference being that this data is measured in millions of euros rather than billions of dollars), and then we extend the graph to see how the situation in recent years:
So…
Since we observed it, the situation of the Germany-China bilateral goods balance has actually improved, approaching balance and even going into a moderate surplus (2 billion euros in 2014). This result was achieved in part with an acceleration of exports for 19 billion (the upward leap in the blue segment), but above all with a slowdown in imports for around two billion (the decrease in the orange segment). Despite these two corrections, Germany never had a marked surplus with China, and with the pandemic things abruptly returned to their historical trend (which was one of deficit trade).
In light of the post from two days ago , it is obviously not surprising that the balance with China has improved since the Eurozone crisis: this is because the ECB responded to that crisis with a colossal competitive devaluation! You can see it a bit here:
(when the euro appreciates – the exchange rate rises – the foreign accounts worsen – the balance falls, and vice versa), and a little better here, using a more accurate measure of German price competitiveness, i.e. the real exchange rate ( Eurostat source ):
Therefore the improvement in the bilateral balance with China can largely be explained by a real devaluation of around 10%, in turn driven by the nominal devaluation of the euro, which however fails to bring Germany into a surplus.
So: these show you some graphs from which it seems that Germany has gone from a surplus with China to a deficit, and the reality is that it was only in a minimal surplus in 2014 and 2018, by virtue of a devaluation of which we too have benefited, but which is now unable to counter the two suicidal choices of the German establishment : that of destroying the internal market with austerity, and that of destroying European industry with green .
I would especially insist on the first point. Compared to the dynamics of trade with China, it seems more plausible to me that the difference was made by the flattening of exports to the Eurozone, which you see here, and which is precisely the result of the destruction of the internal market:
In short: what the Eurozone has lacked is not Chinese foreign demand, which has never existed (except in a subtractive form, as net imports), but the internal demand of the Eurozone, which for a long period has been destroyed by senseless policies of wage deflation. Bagnai told you in 2011 and it's safe for you not to listen to him: Bagnai isn't resentful, he's patient… But now Draghi tells you, you idiots, esteemed colleagues, and you still want to convince us that the Eurozone is dead from the cooling of the Chinese question!?
I owed you so much for today.
Tomorrow is another day, and God willing I will spend it in the cold.
If I meet the wolf I greet you.
This is a machine translation of a post (in Italian) written by Alberto Bagnai and published on Goofynomics at the URL https://goofynomics.blogspot.com/2025/01/hastato-lacina-i-kindersoldat-e-la.html on Sun, 05 Jan 2025 21:19:00 +0000. Some rights reserved under CC BY-NC-ND 3.0 license.