US Treasury speaks up and Germans react indignant

It does indeed sound unjust when you are the growth locomotive in the EU, when you work your butt off for low wages, discover that you are amongst the poorest in the EU to hear these slanderous voices coming from that country that listened in on the phone of your Dear Leader.

But, dear Germans, these two topics are unrelated and the reason that you put them in a context shows a lack of understanding of economics and is secondly smug to the extent that it runs against the personal experience of the vast majority of Germans, or did you forget that just days ago an article said that 16% of Germans live in poverty??

Exports Germany_0

Zerohedge

This export dependency looks a little bit scary, does it not?

The Treasury:

Ireland, Italy, Portugal and Spain are all now running current account surpluses as import demand in those economies has declined. Thus the burden of adjustment is being disproportionately placed on peripheral European countries, exacerbating extremely high unemployment, especially among youth in these countries, while Europe’s overall adjustment is essentially premised on demand emanating from outside of Europe rather than addressing the shortfalls in demand that exist within Europe.

target2Just assume this is a graph of a poker group that meets once a week for a game of poker. One person is constantly winning. It is hard to imagine that this group will exist for a longer time span.

P. Krugman has a new follow-up on this. He quotes the German Spiegel report:

“The worst thing, if you ask me, in the Spiegel report on the controversy is the statement by Germany’s Economics Ministry that Germany’s surplus is

a sign of the competitiveness of the German economy and global demand for quality products from Germany.

Economists everywhere should read this and weep. It is a basic accounting identity that

Current account = Savings – Investment

You can not get this into the head of a German and certainly not in the head of the Economics Ministry. What Krugman forgets here is the typical German mindset. Being thrifty is prudent for a German. He loves his savings account which yields below the inflation rate and thus guarantees him he is losing money. But the German loves the security of that account because his government guarantees it. Just don’t mention the Disselbomb.

A German does not see the difference between his private economy (i.e. his/her private bank account) and a state economy. Whereas it makes sense to keep € 200,000 in your account for your pension, it does not make sense for a state economy to keep 200 billion in surplus and not invest. One difference is that the private person will have no recurring income after he stops working and so needs a nest egg. A state has ongoing recurring income in the form of taxes.

Sorry Mr. Krugman, but you will not convince Germans. When a German invests in a stock (that is a very remote idea after the crash of the Telecom stock and the Neuer Markt) he expects it to go up. If not, he will sue, he scrambles for his government to make him good and he might consider suing an actor who promoted that stock way back.

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