Germany’s vaunted export machine has once again come under political fire. This time it started with one paragraph in the United States Treasury Department’s semiannual report on the world economy, which accused Germany of running an excessive current account surplus and putting deflationary pressure on the world economy.
The report coincided with the announcement by the European Commission that Germany’s surplus had repeatedly gone above 6 percent of its gross domestic product, a threshold violation that prompts a review by the commission.
A number of usual suspects, ranging from esteemed economists to popular commentators, were quick to join the chorus. Reading their articles, one gets the impression that the introduction of the euro was a grand German scheme to take advantage of its weaker neighbors, and that if only the world could make them spend more lavishly, it could solve everything.
In the very year when the Nobel Prize was awarded to economists with diametrically opposing views, it is worth remembering that political economy is never so simple, and that scapegoating a single country for the problems of an entire continent results in bad political theater, and almost never in good policy making.
Critics often focus first on Germany’s allegedly low wages and levels of public investment. And it is true that, in the decade before the financial crisis, wage growth in Germany followed the modest productivity gains that were observed in many countries across Europe — which appear lower than they should be because other countries like Spain and Greece saw a disproportionate increase in wages.
This criticism also misunderstands basic concepts about the German labor market like Tarifautonomie — collective bargaining between unions and employers without government interference — which have led to more reasonable outcomes than wage negotiations in other countries.
And arguing that Germany should adopt wage-boosting policies just to match other euro zone countries ignores the fact that all of Europe is competing in a globalized economy and must remain competitive with emerging countries.
In contrast, those criticizing the lack of German investment do have a point. In 2000, the level of investments in Germany was about equal to the average of the euro zone. In the next decade Germany had an average investment rate that was 2.4 percentage points lower than in the rest of the euro area.
Without question, Germany needs to spend more to modernize its transportation network, improve the education system and further invest in renewable energy.
Another popular claim is that Germany’s export-led growth is hurting Europe’s recovery. While high-capital flows from Germany to the periphery did facilitate financial bubbles in the years before the crisis, it is not true that today’s surplus is why some euro zone countries cannot rein in their deficits. In fact, that surplus has been falling for five consecutive years and, by last year, it was back where it had been in 2000.
The real driver of Germany’s exports has been trade with countries outside the European Union: It almost doubled in value and its share rose from 35 percent to 43 percent of total German exports over the last 12 years.
Moreover, those calling for Berlin to adjust its economic policy should consider its role as the de facto lender of last resort for the euro zone. That position is critical for Europe’s economic recovery, but it can be maintained only as long as investors have faith in the strength of the German economy.
Finally, is Germany’s export success problematic for the world economy, as the Treasury report indicates? In theory, sure: Any significant imbalance is a potential source of instability. But the global economy will always have to deal with such imbalances, regardless of what Germany does.
And hearing these accusations from the United States — which has been putting inflationary pressure on the world economy for decades and just narrowly avoided a default on its debt — is rather ironic.
Most of today’s debates in Germany focus on issues related to how domestic demand could be stimulated without jeopardizing future stability. Ideally, the European Commission’s review will come up with concrete and realistic recommendations, too. These exercises make sense.
But without a truly integrated union and strong institutions to coordinate and enforce policy decisions, the cries of “Berlin must do something” ring hollow. Countries don’t change their behavior through mutual finger pointing, but through a mutual understanding of respective failures. Instead of lecturing each other, Germany and the United States should both think about how to pursue corrective actions together.
Karl-Theodor zu Guttenberg, who served as the defense minister, economics minister and technology minister of Germany, is a nonresident distinguished statesman at the Center for Strategic and International Studies.