« Links for 04-04-15 | Main | 'Do not Underestimate the Power of Microfoundations' »

Saturday, April 04, 2015

'Germany's Trade Surplus is a Problem'

Ben Bernanke:

Germany's trade surplus is a problem: ...in recent years China has been working to reduce its dependence on exports and its trade surplus has declined accordingly. The distinction of having the largest trade surplus, both in absolute terms and relative to GDP, is shifting to Germany. ...

In a slow-growing world that is short aggregate demand, Germany’s trade surplus is a problem. Several other members of the euro zone are in deep recession,... and ... their fiscal situations don’t allow them to raise spending or cut taxes... Despite signs of recovery in the United States, growth is also generally slow outside the euro zone. The fact that Germany is selling so much more than it is buying redirects demand from its neighbors (as well as from other countries around the world), reducing output and employment outside Germany at a time at which monetary policy in many countries is reaching its limits.

Persistent imbalances within the euro zone are also unhealthy, as they lead to financial imbalances as well as to unbalanced growth. ...

Systems of fixed exchange rates, like the euro union or the gold standard, have historically suffered from the fact that countries with balance of payments deficits come under severe pressure to adjust, while countries with surpluses face no corresponding pressure. ...

Germany has little control over the value of the common currency, but it has several policy tools at its disposal to reduce its surplus—tools that, rather than involving sacrifice, would make most Germans better off. Here are three examples.

  1. Investment in public infrastructure. ...
  2. Raising the wages of German workers. ...
  3. Germany could increase domestic spending through targeted reforms, including for example increased tax incentives for private domestic investment; the removal of barriers to new housing construction; reforms in the retail and services sectors; and a review of financial regulations that may bias German banks to invest abroad rather than at home.

Seeking a better balance of trade should not prevent Germany from supporting the European Central Bank’s efforts to hit its inflation target...

...global imbalances are not only a Chinese and American issue.

    Posted by on Saturday, April 4, 2015 at 03:50 AM in Economics, International Finance | Permalink  Comments (80)


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.