Monday, April 24, 2017

Bill Mitchell — German trade surpluses demonstrate the failure of the Euro

The election of Donald Trump has stirred up the IMF and Germany, in particular.|Trump’s trade advisor has claimed that Germany is manipulating the currency to maintain its competitiveness. A more general view is that the massive German external surplus is a reflection of a dysfunctional Eurozone, particularly the failed monetary policy stance of the ECB and the lack of a European-level (federal) fiscal policy capacity and willingness to expand domestic demand in the Member States. In fact, both views have credibility as I will explain. Last week (April 19, 2017), Eurostat released the latest trade data for the Eurozone – Euro area international trade in goods surplus €17.8 bn. It showed that Germany’s trade surplus continues to grow (it was 35.4 billion euros in January-February 2017, up 1.4 billion over the 12 months) in total. In 2016, Germany’s current account surplus was 8.6 per cent of GDP, which is obviously an outlier. What is required to redress this on-going dysfunction within the Eurozone would appear to be beyond the political mentality of the establishment polity in the Eurozone. And with Macron’s elevation to an almost certain Presidential victory in France, it is hard to see any dynamic for now emerging that will create change for the better. So as usual, the Eurozone muddles on – with a dysfunctional design architecture and an even more dysfunctional attitude to policy flexibility held by the powers to be. Germany is seriously responsible for a lot of this dysfunction.
Germany is operating with the euro as a discounted DM. All the other nations using the euro are operating with a currency premium. 

Bill Mitchell – billy blog
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


Matt Franko said...

"Eurozone's economy beats predictions with activity at six-year high"

Ignacio said...

Yes, all well financed by the sector outside of the EU, but France is not part of it (mostly).

And the eurocrats will claim victory for this one, because "competitiveness!" or whatever bullshit.

A few weeks ago the Spanish minister of public finances said that thanks to the recovery there will be a reduction in the deficit which will result in an even stronger "recovery". This is the kind of sloppy thinking that goes all over the EU, not realizing that without more spending (and "higher deficit" in result) and a collapsing competition in the Mediterranean there would not have been such "recovery" to star with.

I'm fed up with the idiocy in this continent regarding economic matters.