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And of course the largest trade partner of Germany is still France.

German exports in 2012:

1.France

That is a fantastic reason for France not to share a currency with Germany.

Imagine a core Eurozone with Germany and France alone, and Germany retaining its 6% current account surplus. If their common currency continued to float freely and the core Eurozone had a neutral current account balance, France would have an 8% current account deficit.

So either Germany gives up its current account surplus or the rest of the world allows the core Eurozone to devalue its currency so that it can run a 3% current account surplus. Or Germany accepts fiscal transfers to France comparable to the size of the current account balances.

As none of the three possibilities are politically plausible, there cannot be a core Eurozone consisting of Germany and France. In fact, there cannot be a Eurozone consisting of Germany and anyone else (as the successive failures of Europe's attempts to fix exchange rates without fiscal transfers over 40 years demonstrate).

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 06:17:42 AM EST
[ Parent ]
No, because imports in 2012:

  1. Netherlands
  2. China.
  3. France.
  4. USA.
  5. Italy

That is a two-way relationship. Note: The Netherlands run a considerable trade surplus with Germany and that is probably the case since the revolt of the Netherlands or so. And this:

"In fact, there cannot be a Eurozone consisting of Germany and anyone else"

Is simply magical thinking.  So Germany couldn't share a currency with the Netherlands because of their unbalanced trade?

by IM on Mon Mar 11th, 2013 at 06:27:58 AM EST
[ Parent ]
NL trade surplus = Rotterdam.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Mar 11th, 2013 at 06:32:20 AM EST
[ Parent ]
Even that is a tradition; that was the cause of the Navigation Acts after all

German trade surplus with eastern europe = Hamburg

by IM on Mon Mar 11th, 2013 at 06:48:32 AM EST
[ Parent ]
Nope.

The German trade surplus basically happens in the southern half of the country. And that cargo goes to Bremen, Rotterdam and Trias (in roughly that order).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 11th, 2013 at 03:54:25 PM EST
[ Parent ]
Even if we just look at trade balances the five biggest (trade) surpluses of Germany in 2012 are:

  1. France
  2. USA
  3. UK
  4. Austria
5.Switzerland

Two of these euro countries, three of those countries with a free floating currency.

by IM on Mon Mar 11th, 2013 at 06:31:57 AM EST
[ Parent ]
So the biggest trade surplus of Germany is with France, not just the biggest export figure. My argument stands. If the Eurozone consisted only of France and Germany, France would be in a current account crisis in a few years. The only reason it isn't already is that there are a few dominos to fall before France: Greece, Portugal, Spain, Italy...

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 08:11:28 AM EST
[ Parent ]
So either Germany gives up its current account surplus or ...

No, its the other way around: we have to give up trade deficits. That is the purpose of structural reforms, which are necessary irrespective of whether we have the Euro or not. It has nothing to do with the Euro. The problem is one of adapting traditional societies to the competitive environment of the modern world.
by The European on Mon Mar 11th, 2013 at 07:02:19 AM EST
[ Parent ]
One country can't have a surplus without another country having a deficit. And since the eurozone has largely balanced trade with the rest of the world, the problems of trade surplus and defiicits are internal to the eurozone.



Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Mon Mar 11th, 2013 at 07:08:49 AM EST
[ Parent ]
the problems of trade surplus and defiicits are internal to the eurozone

Some countries like Portugal have had a trade deficit for the last 60 years. That predates EZone and EU membership.
Anyways, jobs in the South are lost to China and the emerging economies not to the North.
The simple fact of the matter is that countries in the South have priced themselves out of low-cost manufacturing without managing the transition to high value added production. That is a structural problem that won't be solved by exiting EZone/EU. That problem cannot be solved by monetary policy.
by The European on Mon Mar 11th, 2013 at 07:31:29 AM EST
[ Parent ]
Some countries like Portugal have had a trade deficit for the last 60 years. That predates EZone and EU membership.
First there was the Bretton Woods gold standard, then there was the European Monetary System, then there was the Exchange Rate Mechanisms ERM I and ERM II. Throughout, Portugal ended up devaluing its currency. If there hadn't been a decades-long policy of fixed exchange rates, maybe Portugal might have had a gradual devaluing of the currency (not a periodic crisis) and a much smaller trade deficit (still a deficit, but within statistical error of zero).

Trying to keep your currency overvalued will produce the trade deficit, and then the devaluation crisis. An overvalued currency, however, is great for the local elite to take their rentier income out of the country.


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 08:00:12 AM EST
[ Parent ]
First there was the Bretton Woods gold standard, ...

First there was the Salazar dictatorship (Franco dictatorship in Spain) which pampered its domestic industry and made it noncompetitive. These traditional structures together with an over reliance on real estate speculation is what's wrong with these economies.
by The European on Mon Mar 11th, 2013 at 08:26:05 AM EST
[ Parent ]
Then why did France devalue serially, just as Portugal did?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 08:29:12 AM EST
[ Parent ]
The simple fact of the matter is that countries in the South have priced themselves out of low-cost manufacturing without managing the transition to high value added production. That is a structural problem that won't be solved by exiting EZone/EU. That problem cannot be solved by monetary policy.

It must be solved by fiscal policy, and it can only be solved by fiscal policy if monetary policy doesn't work against it.

The EU allows no industrial policy, no independent fiscal policy, and has a monetary policy conducive to deflation, depression and unemployment.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 08:01:52 AM EST
[ Parent ]
The European:
That is a structural problem that won't be solved by exiting EZone/EU

how can it be solved, in your opinion?

keynesian job creation? government investment of citizens' taxes to provide employment and teach skills to make them productive?

whose fault is it they don't get smart like the germans and invent more saleable stuff for the world economy, or price their labour cheaper than asia's?

if we are in a painful transition period between old and new capitalism, what is the goal the suffering is for?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Mar 11th, 2013 at 10:04:42 AM EST
[ Parent ]
how can it be solved, in your opinion?

The Andrew Mellon way:

liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 10:15:12 AM EST
[ Parent ]
whose fault is it they don't get smart like the germansBavarians and invent more saleable stuff for the world economy, or price their labour cheaper than asia's?
Fixed that for you
Edmund Stoiber once caused something of an uproar when he said "unfortunately, not everyone in Germany is as intelligent as in Bavaria".
(today's Newsroom)

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 11:23:36 AM EST
[ Parent ]
Anyways, jobs in the South are lost to China and the emerging economies not to the North.

Because of the overvalued exchange rate relative to where it would be if the south did not have to subsidize German currency policy.

The simple fact of the matter is that countries in the South have priced themselves out of low-cost manufacturing without managing the transition to high value added production. That is a structural problem that won't be solved by exiting EZone/EU. That problem cannot be solved by monetary policy.

The simple fact of the matter is that "structural adjustment" is making that problem worse, not better.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 11th, 2013 at 04:12:00 PM EST
[ Parent ]
But the accounting is still based on national borders.  Which is a problem nobody seems willing to face.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Tue Mar 12th, 2013 at 02:23:14 PM EST
[ Parent ]
we have to give up trade deficits

Therefore, the Eurozone must run a trade surplus with the rest of the world.

And the rest of the world is going to accommodate that without allowing their freely floating currencies to devalue, exactly why?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 07:55:58 AM EST
[ Parent ]
So either Germany gives up its current account surplus or ...
No, its the other way around: we have to give up trade deficits.
The surplus country has policy space, the deficit country doesn't. Therefore it's the surplus country that has agency. Especially in a fixed exchange rate regime.

If the surplus country won't play ball, the fixed exchange rate system breaks down. The story of the past, I don't know, 150 years?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 08:14:56 AM EST
[ Parent ]
No, its the other way around: we have to give up trade deficits.

The sum of all foreign trade must be zero. Ergo, to give up deficits, you must give up surpluses.

That is the purpose of structural reforms,

No, if that were the purpose of structural reforms, then the structural reforms would include confiscatory taxation of extreme wealth, sharp discounting of overvalued currencies, picking strategic industry winners for aggressive state investment, and imposing restrictive joint venture and local sourcing requirements for high-tech imports.

This is not what is being done, therefore the purpose of structural reform is not to do away with trade imbalances (unless you wish to postulate that those who peddle structural reform are all idiots who do not understand elementary import substitution strategies).

which are necessary irrespective of whether we have the Euro or not.

Why?

It has nothing to do with the Euro. The problem is one of adapting traditional societies to the competitive environment of the modern world.

If adapting to the competitive environment of the modern world leaves a large fraction of the population substantially worse off, then why should we not simply throw up protectionist barriers against foreign competition?

Competition is, after all, a policy, not an objective. If we can protect the interests of the bottom three quarters of the income distribution at the "cost" of wiping out the accumulated wealth of the top quarter, then that's a feature, not a bug.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 11th, 2013 at 04:09:43 PM EST
[ Parent ]
The sum of all foreign trade must be zero.

Never going to happen.  Latvia, say, is never going to have a viable domestic automotive industry and Germany, say, is never going to have autarky in food production.  The relative production costs, thus purchase price, for manufactured goods versus agricultural commodities means a steady trade imbalance between the two regions.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Mar 12th, 2013 at 02:34:21 PM EST
[ Parent ]
And still the sum of all foreign trade must be zero, by the magic of double-entry bookkeeping: The exports of one state are the imports of another state. Sum up over the whole planet, and you have zero (so long as the rest of the galaxy does not pay us for the space probes we send them).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Mar 12th, 2013 at 02:38:37 PM EST
[ Parent ]
Trade is the flow of goods and services thus we need to look at Cash Statements rather than Balance Sheets.  History shows there will always be a larger flow of cash from resource to resource-user regions.  (Tho' I concede the current situation increases that flow.)  Mostly, IMO, from the fact there are many more potential and actual resource regions producing, e.g., wheat, than resource-user regions producing, e.g., iPods.  Also resource regions tend to be over-populated with respect to the per capita current market value of their goods in international trade.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Tue Mar 12th, 2013 at 03:13:57 PM EST
[ Parent ]
Whichever way you look at it, at the macro level it has to net to zero. That's really not controversial, except to German politicians it would seem.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Tue Mar 12th, 2013 at 03:52:07 PM EST
[ Parent ]
Surely you mean "fine us for parking the space junk we send them"?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed Mar 13th, 2013 at 08:51:33 AM EST
[ Parent ]

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