Britain motors into Europe

We've 'woken up' and now we're on track to become Germany's number one trade partner

They are conspicuous symbols of international trade, the 12 London cabs plying the streets of Germany's financial capital.

"The Germans love it," says Walter Barth, who owns two of the taxis and says they're usually booked days in advance. "Some customers sit in the back and feel they've got to wave to the public like the Queen."

Barth's British cabs, painted the off-white that German regulations demand, are a tiny part of the increasing trade between Germany and the UK that is still flourishing despite the strong pound. Britain exported goods and services worth DM4.964bn (pounds 1.7bn) to Germany in July 1997, for example - a substantial 38 per cent more than in November 1995, when imports were DM3.588bn.

"Britain has definitely woken up," says Oscar-Erich Kuntze, economist at Ifo Institute in Munich. "For decades, they had a stop-and-go economy. When the pound was high, exports slumped, companies cut investments, laid off people, the economy turned into a recession, imports started to decline and eventually, the pound fell. Then the reverse process started."

The recent strength of the pound should have started to cut into export growth. It has risen from DM2.217 to the pound in November 1995 to peak at DM3.017 last July. Currently it is hovering just below DM3. UK products have become 36 per cent more expensive for German customers.

"Usually, if a currency gains one per cent in value against another currency, exports from that country decrease 0.5 to 0.9 per cent, with a typical delay of about half a year," said Carsten Meier, a University of Cologne economist who specialises in trade relationships.

This rule of thumb seems to have gone by the board this year. "The pound is up but our exports haven't decreased," said David Kern, chief economist of NatWest, "but it's too early to say that this situation is sustainable."

Carbodies Ltd in Coventry thinks there will be good news. Since the 1950s it has built London cabs, like the ones Walter Barth operates in Frankfurt.

Barth is enthusiastically anticipating trade will increase. He is Carbodies' sales manager for the Rhine-Main region. "Next year," he estimates, "there'll be 50 in Frankfurt and there is a market for 2,000 in Germany."

Looking at German exports to Britain, the picture is not what you would expect either. Overall, Germany sold products and services worth DM7.054bn to Britain in July 1997, 42 per cent more than in November 1995, when sales were DM4.962 bn.

This is because Britain is becoming relatively more important than France as a German export market. It is also because German companies are using Britain as a low-cost export platform for the rest of the world.

Siemens, Germany's biggest employer and third-largest seller of capital goods, confirms the trend. "Britain is increasingly important for us," said spokesman Thomas Weber. "Just looking at the last 15 months, we've announced plans to build a chip-plant in Newcastle, we've bought parts of Parsons, sold our defence industry to British Aerospace - and we're in talks with BNFL about co-operation in nuclear power. In France, we've done nothing."

Juergen Gehrels is chief executive of Siemens Plc, the UK subsidiary of the German heavy machinery and electronic products maker. His pride is pulled two ways as he discusses Britain and trade: "Britain has significantly gained competitiveness," he said in an interview. "It is a highly innovative and flexible environment. More so than Germany, which is living on borrowed time."

Siemens' exports from Britain to the world, totalling pounds 1.3bn last year, have been rising steadily despite the strong pound and half go to Germany.

"We and Britain as a whole are constantly working to increase productivity and to introduce new products faster on the market than anyone else," says Gehrels. "That's why Britain is such a lively and dynamic environment."

German exports to Britain totalled DM61.671bn in 1996 and Britain's share of German exports rose from 8.0 to 9.0 per cent. "That's quite a rare phenomenon," said Meier, "as export ratios usually remain very stable."

France still accounts for 11 per cent of Germany's exports but "their share is shrinking", according to Meier. He added: "And the trend will continue, as the strength of Britain's economy will only be fully reflected some months from now."

Kolbenschmidt, German maker of car machinery parts, expects an even longer delay. "The contracts we signed now will lead to sales in two or three years," board member Joerg-Martin Friedrich said. "But our sales are up already. We will export goods worth DM94m this year, 13 per cent more than 1995," he said.

"It certainly looks as if Britain is gaining ground as a trade partner for Germany," said Michael Heise, chief economist at DG Bank in Frankfurt. "And one of the reasons could be the increasing interlocking of the two economies."

According to the British Chamber of Commerce, there are around 800 British companies present in Germany. And the German Chamber of Commerce in London says there are more than 1,500 German companies operating in Britain.

One of them is Hugo Boss, the fashion company, which has significantly expanded its business in Britain. "Our sales are up 49 per cent in Britain this year," said spokeswoman Monika Steilen.

"With a continuation of Britain's economic strength, a bit of luck and some more strikes in France, new Britain might become Germany's most important trade partner," says Carsten Meier. "It is certainly on track to do so."

Copyright: IOS & Bloomberg