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Germany's current account surplus may be so extreme in 2012 that it risks a warning from Brussels

FT Deutschland reports that Germany's current account surplus is likely to exceed 6% of GDP this year, the threshold which triggers a European Commission warning. The article quotes Steffen Elstner of the Ifo Institute as saying that this threshold will be reached with certainty. Last year, Germany's surplus was 5.9%. Ifo had previously forecast only a modest increase, but due to weaker import numbers, the surplus is likely to be significantly larger - larger in absolutely terms than China. There was no comment from the Commission yesterday. The German government maintained its position that there was no problem with current account surpluses. On the contrary, the German economics ministry sees this a "very positive" development. The German government spokesman said yesterday that the problem of imbalances was a problem for a countries with large current account deficits.

In defence of surpluses

The German debate on this is unreal. A good example has been a comment by Philip Plickert writes in Frankfurter Allgemeine, who says that the term of a macroeconomic imbalance was questionable in itself. It says it makes no sense to force countries to have balanced current account positions, and it is impossible to control it anyway, except perhaps in China. He also argues that it is absurd to talk about surpluses and deficits in the same way. He says large deficits are a problem because the debt accumulation makes this unsustainable. Germany's surpluses, however, were the consequences of structural strength of the domestic economy, which is not a problem.

(It is interesting to note that German commentators seem to reduce both economic success and failure to purely structural issues, which is strange given the structure of the German economy has not changed all that fundamentally in the last couple of decades. Yet, they hardly ever pay attention to the real exchange rate.)

Where to begin? The Eurozone current account balance is close to zero, so Germany's current accout surplus is, euro by euro, the net current account deficit of the other 16 eurozone countries. Since German GDP is over 1/4 or Eurozone GDP (it was 1/4 in 2009 and the ratio must have improved given the implosion of Spain and Italy), Germany's surplus is 1.5% of overall Eurozone GDP. This means the average current account deficit of the rest of the Eurozone is 2% of GDP, towards Germany.

Since, by accounting identity,

(current account deficit) = (government deficit) - (private sector net savings)

this means that, if the government deficit stays within Maastricht bounds, then the private sector of the Eurozone ex-Germany can only net-save about 1% of GDP.

If Germany's current account surplus hit 9% of GDP, then it would be impossible, on accounting principles, for other Eurozone governments to stay within Maastricht bounds while allowing their private sectors to net-save. Definitely a very positive development demonstrating Germany's inherent strength and leading to unustainable debt accumulation outside Germany.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Tue Aug 14th, 2012 at 04:47:03 AM EST
[ Parent ]
A German surplus isn't a problem because it proves imperial tribute is rolling in.

Deficits are a problem because tribute stops rolling in and a visit from the imperial minders may be needed.

Of course if you still have a nostalgic belief that the EU is about mutual aid, none of this makes sense.

But what exactly has happened since 2008 to support that belief?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Aug 14th, 2012 at 05:03:50 AM EST
[ Parent ]
There can be no German surplus without deficits elsewhere, the one is the logical counterparty of the other.

No need for nostalgic beliefs to conclude that your framing of the matter doesn't make sense. Principally, no doubt, because you are using the metaphor of imperial tribute to try to make sense of German establishment views that don't make sense.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Aug 14th, 2012 at 05:18:53 AM EST
[ Parent ]
Precisely: The empire can keep sending its stormtroopers to the colonies, because the colonies keep having a deficit.

This, of course, requires flat up lying about elementary accounting identities. But these people have been flat up lying about everything that matters for so long that one begins to doubt their ability to tell truth from lie.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 14th, 2012 at 06:09:00 AM EST
[ Parent ]
The stormtroopers lay waste to the colonies' future capacity to provide deficit to mirror Germany's surplus.

Lies, incapacity to differentiate between truth and lies, denial, religious belief in mumbo-jumbo, cog-diss, plain stupidity - whatever, the German attitude does not make sense.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Aug 14th, 2012 at 06:18:38 AM EST
[ Parent ]
There's no need for stormtroopers:
Greece shrank 6.2% in second quarter

Latest data from ELSTAT suggests that the Greece's economy shrank in the second quarter by an annualised 6.2%, seasonally unadjusted, and after a 6.5% drop in the first quarter. It is bringing cumulative contraction to €9.2bn -- or 17.4% -- since the second quarter of 2008, the first year of recession. Economists say Monday's data is roughly in line with a recent forecast from Antonis Samaras for a contraction in GDP of more than 7% this year, according to WSJ. 2

A few more quarters of this and Greece's ability to import from Germany will be completely destroyed. But there will still be capital flight out of Greece, growing Target2 balances and increasing current account deficit from Greece to Germany, until "unsustainability" catches up with them.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Tue Aug 14th, 2012 at 06:26:35 AM EST
[ Parent ]
This doesn't contradict what I said. Note:

afew:

colonies' future capacity
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Aug 14th, 2012 at 07:36:13 AM EST
[ Parent ]
Well - the logic of empire is to conquer and spoil for short term gain, not to tend and nurture for long term benefit.

So I think it makes perfect sense.

There are occasional exceptions - e.g. the Marshall Plan - but that was about building up Europe from a position of less than zero, while also creating a useful cushion against communism.

Since the German empire has no sense of any external geographical threat from outside the Euro borders (except perhaps Russia and China, who can always be negotiated with) plain old idiot racism and contempt are reason enough to plunder the periphery and then leave it to rot.

This is an unimaginably weird position for anyone with any lingering humanity. But I genuinely doubt you'll find much of that at the ECB.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Aug 14th, 2012 at 06:34:40 AM EST
[ Parent ]
ThatBritGuy:
the logic of empire is to conquer and spoil for short term gain

Entirely questionable - the logic of empire includes looking after long-term interests. What you're talking about is the logic of invasion and conquest, Attila-style.

ThatBritGuy:

plain old idiot racism and contempt are reason enough to plunder the periphery and then leave it to rot.

So it isn't the "logic of empire" after all?

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Aug 14th, 2012 at 07:34:54 AM EST
[ Parent ]
The limits of plunder and resource extraction have always been defined by the practicalities of getting the loot home. The British in India would have been far more damaging far more quickly if they hadn't had to rely on creaky old wooden ships and a round trip time of a significant fraction of a year.

Signs of long term planning are illusory or accidental. Generally empires grab as much as they can as quickly as they can. If the empire subsequently implodes - which it often does - tant pis.

Historically, it can take a few centuries for full implosion to occur.

Or at least it used to. Financial plunder is far more distilled and efficient. It can be completed in months, and the victim rarely recovers - unless they decide to rebel and run away.

What you're talking about is the logic of invasion and conquest, Attila-style.

I doubt even Atilla pretended he was invading and raping out of a kind heart and an interest in the long-term benefit of the rapees.

At least he was straightforward and direct about his ambitions.

Possibly the most revolting thing about the ECB's position is that it's attempting to pretend its actions have an enlightened basis, instead of admitting that it's simply acting as a bailiff on behalf of the shadowy 'investors.'

But at least we know the empire of the investors is far more important than the health of elected sovereign governments.

So that's something.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Aug 14th, 2012 at 09:48:00 AM EST
[ Parent ]
I entirely agree about the revolting hypocrisy.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Aug 14th, 2012 at 10:03:29 AM EST
[ Parent ]
The empire's long-term interests and the colonial subject's short-term survival interests, need not converge. And in fact it is questionable if empires consistently can tell the difference between their short term gain and long term interest. The imperial British attitudes toward famished Ireland and (even more so, if possible) India during the second half of the 19th century are indicative, but not at all unique.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Aug 15th, 2012 at 03:38:00 AM EST
[ Parent ]
Eurointelligence:
the structure of the German economy has not changed all that fundamentally in the last couple of decades

If one excepts Reunification, it's more than a couple of decades.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Aug 14th, 2012 at 05:23:09 AM EST
[ Parent ]

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