Why is Germany booming in a time of weak and state supported growth in the rest of the western world?

Something quite extraordinary is going on, the values of the ageing baby-boomer generation have hit the brick wall of debt (also known as leverage). 

The characteristic of most western societies from the 1980es onwards has been that  a rise in living standards for some has become increasingly reliant on borrowing from tomorrow's (fewer and poorer) taxpayers. This has been true particularly of countries like Greece, Britain, Ireland, Spain, Italy and of course the USA. Their formerly "dynamic economies" now seem to have been largely based on accumulating debts and boosting spending unsustainably. The recent world financial crisis simply brought forward the day of reckoning to affect some of the perpetrators.

Meanwhile Germany took a pragmatic view during the years of euphoria, it exported the consumer goods everyone else wanted now while keeping its own consumption moderate and its already high wages in check during this period. It didn't join the party, it just served the drinks for those that were demanding the high-tech machinery and automobiles and other manufactures that germans excel at.

Clustered around germany are a number of economies that in varying degrees followed the policies of Germany. Chiefly countries like Slovakia (more than the Czechs), Poland, Sweden, Denmark etc. They are also closely linked to germany through trade. Slovakia has and is benefiting from German and Austrian investment, and in turn it has become a good customer, in the crisis the Slovak economy almost mirrored the sharp german slowdown and swift recovery

Reading now old articles carrying scathing criticism of europe in magazines such as the economist, or the Financial Times during most of the decade from 2000 up to 2008 makes illuminating reading. With hindsight teutonic/continental economies seem to shine through now as sustainable, socially responsible, and intergenerationally fair systems, and are not suffering the long-term consequences the debts have brought about and anglo economies will feel for decades. Back then the anglosaxon press at best would characterise europe slow or ageing or not as fast growing as the USA. I see no grovelling apologies for these misguided opinions of the past. It seems that Germany's policies but also its admirable investment in the east is in the best tradition of building up the future not only for its own citizens but also for its neighbours. 

To back up my ideas about the lack of debt see the article below by one of the top US economists.

(Why is Germany doing well?) It's the lack of leverage

This contribution was authored by Carmen Reinhart and Vincent Reinhart.

Germany’s relatively robust comeback obviously requires a multi-part explanation. The very important dimension of its resilience in the current environment, where recoveries from the crisis, notably in the advanced economies, on the whole, have been disappointing.

Carmen M. Reinhart is Professor of Economics and Director of the Center for International Economics at the University of Maryland. She received her Ph.D. from Columbia University. Professor Reinhart held positions as Chief Economist and Vice President at the investment bank Bear Stearns in the 1980s, where she became interested in financial crises, international contagion and commodity price cycles.

We explored the experience of economies surrounding severe financial crises in a paper, After the Fall, presented at the Federal Reserve Bank of Kansas City’s Jackson Hole Symposium. As we pointed out, Germany was a notable outlier in the now-notorious credit and debt boom of the decade prior to the onset of the subprime crisis. Credit relative to nominal GDP fell about 11 percentage points during 1997-2007; during the same period, credit/GDP rose 80 percentage points for most of the advanced economies. Germany’s gross external debt/GDP fell about 5 percentage points during 2003-2007, while that ratio climbed by about 50% for other advanced economies. Germany’s property market cannot even be loosely characterised as part of the global bubble. In fact, real house prices fell 11% from 1997 to 2007. Unlike Japan, which was the other notable outlier during the credit boom, it did not have the burden of a high public debt. As a consequence, despite rapid increases in government debt since the crisis, Germany does not have a private or public debt overhang of the historic proportions confronting most other advanced economies. It follows that a long and painful deleveraging is not on the horizon. 

In this regard, Germany is the advanced economy counterpart to emerging markets in Asia and Latin America. Those economies also deleveraged during the tranquil booming years (as discussed in Reinhart and Rogoff, 2010). These emerging markets are not only recovering robustly—some are showing signs of overheating.