Everybody now seems to be laying into Germany and its surplus (which in the German media translates into ‘awesomely successful export nation’). First the treasury, then Krugman multiple times, then “Mr. Euro” Prodi, and now Olli Rehn.
That is really surprising and he is baffled as well:
- He acknowledges that Germany’s surplus is a problem.
- He acknowledges (albeit indirectly) that the initial source of the problem were capital flows from Germany and the core to the periphery; flows that did not go into productive investment but fueled bubbles.
- He (correctly) argues that over the long run some excess savings from Germany is justified by the need to provide for an ageing population.
- He points out that investment has been too low and needs to increase (possible within the framework of an energy transition).
- He also mentions, without mentioning it, the problem of excessively low wages and pauperisation of the labour force, calling for increases in wages and reduction in taxes to boost domestic demand.
The most important and to the point sentence in Rehn’s post is:
First, the creation of the euro prevented the German exchange rate from appreciating to reflect the large surplus.
Of course nobody wants to hear this in Germany and so they urge every member state to become more competitive. The BDI is speechless how anybody could accuse a country of being so successful and asking for more infrastructure investments and and increase in private consumption would mean taking on more loans. This is not prudent the Germans say.
What seems to be forgotten over this is the conspicuous absence of any signs of an end to the ongoing CDU-SPD coalition talks. At one point the SPD stormed out of a meeting. There is a real possibility that this might lead to a breakdown. New elections?