Europe’s economic center of gravity has shifted, new statistics confirm, from heavily-regulated, high-wage markets like France and towards the cheaper, more freewheeling east. This has both in part been caused by and accelerated a German shift in investment. Reuters reports:
A quarter of a century later, the continent’s industrial geography has morphed. A more fitting image might be a golden soccer ball centered on southern Germany and reaching into Poland, Hungary, the Czech Republic, Slovakia, Austria and Romania.“We have seen a huge relocation and concentration into a central European manufacturing core,” says Michael Landesmann, scientific director of the Vienna Institute for International Economic Studies.Former-communist countries that joined the European Union in 2004 and 2007 have become the extended production line of German industry, no longer just supplying raw materials and components but assembling cars and some industrial machinery.
The report also raised some interesting points on other important European regions. The UK is losing manufacturing jobs but picking up other service jobs to grow employment; France, on the other hand, is losing manufacturing jobs and not replacing them.Similarly, the southern periphery of the eurozone is nowhere: no sign (yet) that despite massive unemployment, industrial investment is moving south. The perceived north-south split (with France caught in the middle) is real.No pattern lasts forever and this one could also shift, but as long as it holds, the focus of German foreign policy is likely to keep shifting east—as countries like Poland and the Czech republic matter more to German manufacturing, they will matter more to German politicians.This underlines the need for countries like France, Italy and others to ask themselves what reforms will attract more investment—from Germany as well as from outside the Union. As the French and Italian governments move to deregulate their labor markets (often in the face of fierce opposition from their own people), Greece digs in its heels, and Spain wavers in the middle, these questions are especially pointed.