Even before the fall of the Berlin Wall, Germany used the European system to ‘nearshore’ industrial production to low-wage central European countries. Now it has a colonial hinterland.

Trading places: Mercedes-Benz’s glossy building in Warsaw Mateusz Włodarczyk · NurPhoto · Getty

The Hartz laws, introduced between 2003 and 2005, supposedly cured Germany of being what The Economist in 1999 called ‘the sick man of the euro’; they allowed precarious employment, and were entirely responsible for restoring the competitiveness of German business and reviving Mercedes-Benz’s overseas sales. This is a great story (which inspired President Macron to try a similar remedy in France), but it’s not the whole truth.

As the economic historian Stephen Gross points out, ‘to fully understand Germany’s success as a global exporter, we need to look beyond its borders. One of the most important foundations of Germany’s export economy is the commercial networks it has developed with the economies of east-central Europe’ ; its asymmetrical trade relationships with Poland, the Czech Republic, Hungary and Slovakia (the Visegrád Group). For a quarter of a century, Germany, has been doing there what the US has done with factories in Mexico — nearshoring.

Germany’s privileged trade relationships with central Europe are not new. They were established in the late 19th century, between Bismarck’s Second Reich and the Habsburg empire. Curtailed by the cold war, they were revived in the 1970s as industrial, technological and banking partnerships, thanks to Social Democratic chancellor Willy Brandt’s Ostpolitik (1969-74). The fall of the Berlin Wall started a feeding frenzy, as German multinationals bought up newly privatised state enterprises. While Volkswagen’s acquisition of Czech carmaker Škoda in 1991 made an impression, western European firms initially subcontracted work to central European facilities, which they used as outsourcing bases.

Privileged trading relationships with central Europe were established in the late 19th century, between Bismarck and the Habsburg empire

To do this, they used an old but discreet and little-known process: outward processing traffic or OPT. Codified under European law in 1986, OPT (...)