Germany rejected accusations from the United States Treasury last month that its dependence on exports has undermined growth in the rest of Europe. “The current account surplus is an expression of the strong competitiveness of the German economy and international demand for quality products from Germany,” a statement from the Economy Ministry in Berlin read. Others accused the Americans of distorting the facts to serve their own interests.
In a report to Congress (PDF), the Treasury Department blamed “Germany’s anaemic pace of domestic demand growth and dependence on exports” for hampering a “rebalancing at a time when many other euro area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment.”
Holger Schmieding, chief economist at the Berenberg Bank, disputed that interpretation in an interview with the the conservative Süddeutsche Zeitung newspaper, pointing out that while Germany has a 7 percent trade surplus overall, the number for other eurozone countries has decreased from 5 percent in 2008 to 2 percent this year. “At the same time, Germany has managed to expand its trade surplus with the rest of the world, including the United States,” he said.
An op-ed in another conservative daily, Die Welt, further argued that the currency area would probably be in an even deeper recession had it not been for the “growth engine” that is Germany.
It was hardly the first time the Americans complained about Germany’s dependence on exports. As early as 2010, then-Treasury Secretary Timothy Geithner lamented that the Germans, like the Chinese, had been “counting on the United States to import more of their goods and services than they bought of ours” and suggested they increase domestic demand.
German chancellor Angela Merkel resisted an effort by her American counterpart, Barack Obama, at the G20 summit in South Korea that year to “rebalance” global trade, arguing, “In the task ahead, the benchmark has to be the countries that have been most competitive, not to reduce to the lowest common denominator.”
Germany has exported more than it imports almost without interruption since the early 1950s, experiencing a slump after reunification in the 1990s when it was known as the “sick man of Europe.” Its lackluster economic performance at the time triggered labor market reforms in the early 2000s that made German workers more competitive. Exports subsequently surged, coinciding with the introduction of the euro. But trade with other eurozone countries didn’t markedly increase, nor has there been a direct correlation between German exports to another European country — causing capital to flow out of that country and into Germany — and fiscal crises in the periphery of the single currency area.
Germany’s trade surpluses with Belgium, Portugal, Luxembourg and the Netherlands expanded considerably between 1999 and 2009. But whereas Portugal ended up in a debt crisis, the Benelux countries did not. Germany’s trade surplus with Greece doubled in the ten years after the euro was introduced but most of that increase occurred immediately after 2002. Germany’s trade imbalance with Ireland has been minimal while exports to China, Norway, Poland, Turkey and South Africa skyrocketed during the same period. Denmark, Sweden and the United Kingdom, European Union member states that do not carry the euro, also imported more from Germany than they sold to it.
Germans have traditionally been excessive savers. That wasn’t much of a problem as long as their “excess” capital could be invested in southern economies. It became a problem when those same economies threatened to a go bust and German banks naturally hesitated to put their customers’ money into countries that wouldn’t put their houses in order — despite what they perceived as Germany hectoring them to reduce their deficits and boost their competitiveness, largely by reducing labor costs which are sometimes higher than Germany’s even if their workers are less productive.
The eurozone’s imbalances, if anything, are less an inditement of Germany relying on others for its economic success than a repudiation of the notion that seventeen very different economies could share one currency in the first place. If peripheral countries had maintained their own currencies, these would have devalued against Germany’s as they borrowed or printed money to pay for German products — and they probably wouldn’t have been able to borrow as much as they did as investors didn’t assume they were as creditworthy as Germany was before the single currency was introduced.