Germany: The end of the mercantilist strategy

Germany was a perfect example of country pursuing a mercantilist strategy: Growth was driven by exports; Domestic savings are very high, and domestic demand is therefore weak, which frees up production for exports; The savings surplus leads to the accumulation of external assets, therefore to additional income generated by these assets; The external surplus is strengthened by the real undervaluation of the exchange rate (provided by the squeezing of wage costs in first half of the 2000s). But if, as one we are now seeing: Global trade weakens; Cost competitiveness deteriorates; Germany's industrial prod uctive specialisation ("old industry") is no longer optimal , then the mercantilist model will collapse, as what remains is only weak exports and weak domestic demand .