Economic, Monetary and Fiscal Policies
Is Germany’s Current Account Surplus ‘Unfair’? (Michael Wohlgemuth)
Michael Wohlgemuth Is Germany’s Current Account Surplus ‘Unfair’? Introduction With German exports reaching record highs, the German ‘business model’ has come under attack from various places including Washington and Brussels. Germany is made responsible for imbalances in the world econ- omy and the Eurozone. But are the allegations justified? Has Germany really been profiting unfairly from the common currency? What are the reasons for Germany’s current account surplus? Is it likely to stay? Would boosting imports in Germany really help the peripheral economies in the Eurozone? The answers to these questions are complex, but blaming a ‘neo-mercantilist’ German conspiracy or beggar-thy-neighbour policy is way off the mark. It is much more the logic of the common currency in Europe that is to blame. Finally, for better or worse, the imbalances are quite unlikely to persist. The argument For some years now, the German current account surplus has been criti- cized from many sides. In 2013, the US Treasury published a Report to Congress (US Department of Treasury 2013) in which it states: ‘Germany’s anemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro-area countries have 70 Michael Wohlgemuth been under severe pressure to curb demand and compress imports in order to promote adjustment. The net result has been a deflationary bias for the euro-area, as well as for the world economy’. This view has long been held also by Nobel laureate Paul Krugman who argues: ‘We are still in a...
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