The Economist has joined me on the anti-German bandwagon:
There is much to envy in Germany’s model. Harmony between firms and workers has been one of the main reasons for the economy’s outperformance. Firms could invest free from the worry that unions would hold them to ransom. The state played its part by sponsoring a system of vocational training that is rightly admired. In America the prospects for men without college degrees have worsened along with a decline in manufacturing jobs—a cause of the economic nationalism espoused by Mr Trump. Germany has not entirely escaped this, but it has held on to more of the sorts of blue-collar jobs that America grieves for. This is one reason why the populist AfD party remains on the fringes of German politics.
But the adverse side-effects of the model are increasingly evident. It has left the German economy and global trade perilously unbalanced. Pay restraint means less domestic spending and fewer imports. Consumer spending has dropped to just 54% of GDP, compared with 69% in America and 65% in Britain. Exporters do not invest their windfall profits at home. And Germany is not alone; Sweden, Switzerland, Denmark and the Netherlands have been piling up big surpluses, too.
For a large economy at full employment to run a current-account surplus in excess of 8% of GDP puts unreasonable strain on the global trading system. To offset such surpluses and sustain enough aggregate demand to keep people in work, the rest of the world must borrow and spend with equal abandon. In some countries, notably Italy, Greece and Spain, persistent deficits eventually led to crises. Their subsequent shift towards surplus came at a heavy cost. The enduring savings glut in northern Europe has made the adjustment needlessly painful. In the high-inflation 1970s and 1980s Germany’s penchant for high saving was a stabilising force. Now it is a drag on global growth and a target for protectionists such as Mr Trump.
That isn’t true only of Germany. No developed country should have as high a current account surplus as Germany’s. China at least has the excuse of the many millions still in poverty. Germany doesn’t have such a complaint.
What should Germany do? Either the government, businesses, or consumers should spend more. It should import more. It should not use the same currency as Greece or Romania. It should pay for its own defense. Don’t expect any of those things any time soon.
The Euro is too weak for Germany and too strong for everybody else. So France and Italy and Greece have to run austerity permanently to accommodate the German surplus.
Well Merkel has signaled she is open to Macron’s suggestion of a fiscal union and maybe fiscal transfers. I am torn between thinking its a delaying tactic and the Germans have finally seen the light that by running surpluses they also have responsibility in problems in the PIGS countries.
Color me skeptical but willing to be surprised.
She’s been saying that for years, at least five. Meanwhile, German public opinion remains steadfastly against fiscal union.