If the "German Euro" was to split from the "not German Euro" tomorrow as the CHF unpegged recently, do you think it would trade higher or lower than it trades now? What would happen to Audi and VW if it was to trade twice as high?
A fictional "German Euro" would still appreciate relative to the "not German Euro", yes. My point is not that Germany does not benefit from a comparatively weak Euro – it does – but that this doesn't really explain differences between the German and the American automobile industry.
So, your economist might be right, of course, and I am not an economist, just a former junior trader who didn't work out and changed careers. Nevertheless I am pretty sure that if you jack up your prices by 50% overnight, with the prospects of them continuing to rise year on year for decades, you're going to see some price sensitivity. I thus respectfully disagree with the idea that a sudden and large currency appreciation has no effect on a country's exports.
Switzerland can get away with it because there are few locations left which respect foreigner property rights so thoroughly (including against their own government, although this is weakening). Nevertheless they were worried by the prospects sufficiently to literally go and support a peg for years.
1. I'm not saying that it wouldn't have an effect, just that the effect is difficult to predict and may very well be minimal.
2. Keep in mind that many German export products aren't particularly price-sensitive. Take for example, Delo, a typical German Mittelstand business. They produce smartcard adhesives (inter alia) and have pretty much cornered the world market on that product (a few years ago, about 80%, and a pretty good chunk of the smartphone market, too). The cost of adhesives doesn't really factor in the price of a smartcard and quality is more important, so currency valuations have relatively little effect.
3. Most of the value chain of German car manufacturers was outsourced to Eastern Europe in the 1990s [1]. Much of the effect of any increased export prices would be offset by cheaper imports.
4. I can't think of any effect that would jack up the value of a currency by 50% overnight, short of a major economic disaster. A currency appreciation would almost always be gradual and occur over several years.
5. While we are talking about counterfactuals, keep in mind that the US is a currency union also. Similar effects would result in America if the US dollar were split in, say, a Northern dollar and a Southern dollar. Detroit would suddenly see its cars become more difficult to export, while Tennessee's would become cheaper (just as Eastern Europe's under the Euro counterfactual).
Oh, a sharp move can happen, exactly as it just did with Switzerland (41% [2] although stabilized at a bit under 20%): via an exit from a peg. The monetary union is such a peg, an exit or any form of breakdown would cause a sharp revaluation. Without warning, for obvious reasons.
You could argue that an economy which is entirely in a naturally monopolistic, price-insensitive position might be able to weather some pretty severe currency moves, but I don't think Germany can be described thus. 70% of the German economy is services, and 69% [1] of German exports are to EU countries (which would be particularly hit by a EUR breakup as they'd move the same amount the other way). Cars are the largest export by dollar value [2]. I don't know how I'd get stats to show price sensitivity of exports, that being said I know of no car company which is not price sensitive, other than niche manufacturers (e.g. Morgan in the UK). Medical supplies might be another story, especially as it's capex intensive and low headcount. Imports might be part of the picture, but VW's 45% of global staff that is employed in Germany will still draw German Euro paychecks.
As per 5. you appear to agree with me: macro effects are global and "nowhere/no time is different". Although it is not Eastern Euros but Southern Euros which would devalue. Poland isn't Greece by any stretch.
Now I will admit that I agree with you a little bit: I think the fears of currency appreciations are somewhat overstated, particularly in a sophisticated economy producing high value added goods (mine is similar to the reasoning you put forward). Maybe Swiss readers can confirm, but the CHF appreciation seems to have gone alright [4]. But, I had to make the case, and it was popular amongst traders when I was still in the business.
