Remember, during the years before 2007, we saw immense imbalances emerge within Europe, with Germany moving into massive surplus while Spain and others moved into massive deficit. Then it became necessary to unwind these imbalances, with much moralizing from the Germans to the effect that others should be able to do what they did.
But Germany operated in a highly favorable external environment, with fairly high inflation in southern Europe allowing it to make big gains in competitiveness — in effect, internal devaluation — without needing deflation.
Wolfgang Münchau in Warum uns Angela Merkel die niedrigen Zinsen beschert Spiegel Online 13.11.2013 that German savers are grumping about their current low interest earnings - close to zero - but that those rates are another consequence of Merkel's eurozone policies, which have resulted in capital moving in large amounts into Germany.
Frau Fritz is continuing her resistance to an effective eurozone banking union (John O'Donnell and Michelle Martin, Germany challenges use of euro zone cash to repair banks Reuters/Yahoo! News 11/14/2013), while even the European Commission is raising complaints about Germany's protectionist-level current account surplus, as Suzanne Lynch reports in European Commission takes dim view of German surplus ahead of banking talks Irish Times 11/14/2013:
Yesterday, the European Commission announced it is to investigate Germany’s current account surplus, pointing out that the country has exceeded the 6 per cent threshold set by Brussels every year since 2007.Angie the Great's eurozone house of cards isn't falling in yet. But it sure is looking shakier all the time.
Germany's widening gap between its booming export sector and its muted import levels, a
consequence of the German consumer continuing to save, is putting upward pressure on the euro, making it more difficult for the peripheral states to recover competitiveness through internal depreciation, the commission said.
Pressure on Germany has been building since last month’s report by the US treasury which warned that the German economy could be harming euro zone growth. A blog post by EU commissioner Olli Rehn earlier this week, and an astutely timed opinion piece in the Frankfurter Allgemeine, also prepared the ground.
The decision to initiate a review of the German economic model represents a remarkable shift in the euro zone story, as traditionally it has been much lauded. Brussels is sensitive to the political dimension of the move, with Rehn yesterday cautioning against an overpoliticisation of the issue, adding that concern over Germany’s trade surplus does not give a green light to other euro zone countries to ease up on fiscal reforms.
Tags: angela merkel, austerity economics, eu, euro, european union