One Response to Germany atones for alleged current account sin

  1. Why is German current account surplus shrinking to the rest of the currency union? Because their economies are shrinking now. Deficits in periphery were fueling German current account surpluses. That’s how german private sector was able to save financial assets (net financial assets), economy was not doing great but It was doing ok with relativly high employment. However, that has changed now. Austerity being the absolute norm in Europe, German economy will go down with the rest of It.
    I agree that imbalance was the problem, instead of germany trying to be the export Weltmeister, It should have focused on domestic demand by deficit spending, higher real wages etc. Germany did exactly the opposite, It succeeded(because It is more competitive) and now thinks that every country in euro zone should follow this path.It is absolutely impossible to do.
    Economy is financially a closed loop. Every country in the world cannot be a net exporter.

    1. Private sector is trying to deleverage (save net financial assets)
    2. Governments are trying to cut deficits (cut income flow to privete sector)
    3. Government deficits add savings to private sector
    4. It doesn’t look like eurozone can export Its way out of trouble (neither Germany)
    5. When private sector saves, It means it is consuming less, demand collapses

    This is exactly what we are going to see in euro zone, full blown depression, possibly breaking up currency union.

    Germany thinks that exporting is a virtue. What It really should do to keep the whole thing together is to put Greeks to work for itself. How? we are not on gold standard, money is created by double entry bookkeeping. Build a factory in Greece and let them produce say military equipment for itself. Exports are cost and imports are benefit in real terms. Yet they don’t understand this in Germany. They exported bunch of stuff to other eurozone countries, they got nothing real in return (only numbers in bank accounts) and now It doesn’t benefit them to see 25% unemployment in those countries where they exported to. Americans are way sharper in this area but they are out of paradigm too. I don’t understand why Germany is such a technologically advanced nation like It is, and history has proven time and time again that they don’t know how to do anything constructive with their technological achievments and knowledge. They are doing all the destruction in Europe again this time and they will end up humiliated again if they coninue like this. There is no way this austerity could work. US dollar could never work if It was not for fiscal transfers in between the states. There was a similar situation in US in between South and North
    Best of luck
    Kristjan from Estonia