Analysis: Euro zone current account surplus puts Germany in dock

Sun Sep 29, 2013 10:00pm EDT
 
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By Alan Wheatley

LONDON (Reuters) - A sharp rise in the euro zone's current account surplus puts the focus firmly on what Germany's new government can do to boost consumption and revive investment in Europe's largest economy.

Stronger domestic demand in Germany would suck in more goods from countries on the southern rim of the euro zone and so help them to keep improving their own external payment positions by expanding exports rather than crushing spending.

The austerity policies pursued by the bloc's weaker economies to reduce unsustainable debts are one reason why the euro zone has swung from a current account deficit of 0.2 percent of gross domestic product (GDP) in 2009 to a surplus of 2.1 percent in the 12 months to the end of July.

But the main reason is Germany, which ran a surplus with non-euro countries last year of 94.93 billion euros ($129 billion), according to Bundesbank data. The surplus for the whole of the currency bloc in 2012 was 122.44 billion euros.

Germany's overall current account surplus last year was 6.9 percent of GDP - higher even than the 6 percent threshold that the European Commission considers excessive.

Martin Wolf, writing in the Financial Times, said Germany's 'beggar-my-neighbor policies' were exporting bankruptcy and unemployment and were inconsistent with the euro zone's commitments to the Group of 20 leading economies.

Within the euro zone, Germany's surplus with other members has halved as a share of GDP since 2007. But the surplus is nevertheless the mechanical counterpart of deficits elsewhere.

Putting the onus of adjustment entirely on the southern rim without any offsetting stimulus measures could threaten the very survival of the shared currency, said Paul de Grauwe, a professor at the London School of Economics.   Continued...

 
A picture illustration taken with the multiple exposure function of the camera shows a one Euro coin and a map of Europe, January 9, 2013. REUTERS/Kai Pfaffenbach