Posted by: Dirk | September 16, 2015

Imbalances, which require monitoring and decisive policy action

Inspired by Men Who Stare at Goats, the Macroeconomic Imbalance Procedure of the European Union ranks Germany in the category Imbalances, which require monitoring and decisive policy action. The country report on Germany from June 2015 reads:

The current account consistently shows a very high surplus, which is projected to increase to 8 % of gross domestic product (GDP) in 2015.

Now the numbers are in and they confirm this forecast. The Irish Times has reported:

Germany’s current account surplus will likely hit a new record of €250 billion euros in 2015, but it will lose the top spot to China, the Ifo think-tank said on Tuesday. […]

Exports from Germany, traditionally the motor of the European economy, are being driven by the weak euro. A further €5 billion of its current account surplus can be attributed to cheaper crude oil imports, Ifo said.

Ifo said the German surplus would be equivalent to around 8.4 per cent of gross domestic product, meaning it would once again breach the European Commission’s recommended upper threshold of 6 per cent.

It is somewhat amazing that the symptoms that led to the last crisis are there once again, only that now Germany is building up net assets from outside of the euro zone. As trade partners have flexible exchange rates this will end in tears, but this time it will be the “usual” financial crisis. The German export machine is a problem for the world economy. These surpluses are only sustainable if trade partners regularly default, since each German surplus requires a foreign debt to match. Debts, if they are private, cannot rise forever. The coming years will bring some more political and economic instability, I am afraid. The world pays dearly for the existing international monetary non-system, which is the reason why some net exporters cause trouble without being held responsible. Perhaps the IMF should be charged to develop an international monetary system that can improve the situation?

(My colleague Jan Priewe published a working paper on how developing countries can use a development strategy to cope with these problems and more. It is available here.)



  1. Thank you for this interesting post. I agree that Germany’s large current account surplus is a problem, especially for Europe. It represents excess domestic savings over investment, and can clearly only be matched by deficits in its trading partners, which have to be reversed at some point if they are to reduce their debt burdens. Some economists have argued that Germany needs a significant increase in public and private investment, which could help to reduce its CA surplus, generate demand both domestically and for the exports of its trading partners and therefore support European and global growth and rebalancing. Is this a minority view within Germany? Or is there support for encouraging the economy to rebalance as part of a solution to the Eurozone crisis? I would welcome your view on this. Thanks again.

  2. I think it is probably a majority view by now among German economists, but those that get to say their bit in the public debate are almost exclusively the deniers. I saw Lars Feld (council of economic advisors) argue with Joseph Stiglitz here in Berlin on Wednesday, and Feld surely does not think that thinking about debt has something to do with macroeconomics, which is all about productivity and competitiveness. Debt is something from natural philosophy, and prudent countries/firms/households should not go into debt.

    Heiner Flassbeck, a German progressive economist, has signed a letter with Piketty and other saying that austerity failed ( It did not focus on imbalances but rather on debt forgiveness. Progressive economists have discussed imbalances in Germany a lot (for instance: The current consensus is that imbalances are driven by demand, which is also the opinion of the European Commission. I have a paper in which I have a small model that captures the problems. You find links in the IS/MY model section of this website.

  3. […] Ehnts has a useful post on the persistent and growing imbalances in the German economy. The latter’s current […]

  4. Thanks for your reply. I am glad to here that views on the imbalances are perhaps in a majority, but it is sad that these are not prominent in the public debate. I have found the views of Michael Pettis, an economist in Beijing, to be useful on macroeconomic and financial imbalances. He mainly writes on China in his blog, but does discuss his economic model more generally.

    • I know Michael, who used to be a co-blogger. We disagree fundamentally on imbalances. For him, savings play an active role, financing investment at home or abroad. This is the neo-classical view. My own view is Post-Keynesian. Investment is financed by loans, not savings. Hence investment drives the BoP, among other things. A “savings glut” is not possible, so I reject Bernanke’s explanation. For me, imbalances are a symptom of the crisis, not a cause. The cause of the crisis is insufficient aggregate demand, due to a global investment slump. The IS/MY model that I designed is a generalal tool to think about imbalances.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: