Within two or three months, President Donald Trump and the new president of France will both be confronted with an important question of economic diplomacy: what to do about the German current account surplus? Last year it reached 8.6 per cent of gross domestic product, an extreme number for the world’s fourth-largest economy
...So far, Germany has brushed off all criticism. The European Commission presents reports on macroeconomic imbalances each year. The dustbins of Berlin are filled with them. Successive French presidents chose not to raise the issue either.
A good starting point would be to exploit the internal contradictions of Germany’s defence of the surpluses. Ahead of last week’s spring meetings of the International Monetary Fund and the World Bank in Washington, the Berlin government produced a paper that made the point that the US should not worry about its bilateral relationship with Germany, but with the eurozone.
The private paper argued that Germany cannot logically be a currency manipulator as it no longer has its own currency. If the euro is undervalued, it is not Germany’s fault, but a consequence of the European Central Bank’s monetary policies. The message seems to be: don’t call us, call Brussels or Frankfurt.This is an extraordinary defence. If Germany blames the eurozone, then surely the US and the other members of the single currency should insist that the bloc be given the powers to address the problem more effectively.
...It means that the eurozone will have to acquire at the very least a joint fiscal capacity and the right to impose policies on member states to influence the relationship between savings and investments.Since the German government rejects those policies, Berlin’s eurozone argument is bogus. The other member states should not allow Germany to point the finger at them because it runs massive imbalances with them as well as the rest of the world.
What I do know is that the French political class would set itself up for failure if it did not put pressure on Germany to address the issue. If Germany either accepts policies to correct the imbalances, or agrees to reforms of eurozone governance, or ideally both, then the most intelligent French strategy would be to seek a close partnership with Berlin and forge the next stages of European integration. That would be my preferred scenario. The euro’s survival necessitates such a step.
If Germany continues to refuse to address the issue, it would be the job of the next French president to convey to Angela Merkel or her successor as German chancellor that the eurozone is not a tenable construction, and that the euro will over time lose the support of the public, in France in particular.There is no guarantee that Germany would be impressed by such a threat. But a eurozone break-up would constitute such an economic disaster for Germany that it would be in the country’s interest to tweak policy, rather than risk another crisis with potentially disastrous consequences.
Only France is in a position to force the issue because it holds the key to the future of the euro. Thus the smartest strategy for the US should be to forge a strategic alliance with France to confront Germany, rather than opt for unilateral trade sanctions, which are, at best, a diversion.
Re: Eurocrisis in South European angle
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ed up the monetary system is these days. It's not just that money creation is in the hands of commercial banks via the central bank, which is questionable in terms of democracy, but you know, invisible hand of the free market, let the market create the money... I can go with it. The problem is, and this is much worse in Europe than it is in the US, when money is created, it doesn't go almost at all in the real economy. 1 Euro every 18 of quantitative easing caused real growth, the rest goes in inflating stocks. Of course then you have situations like France were business have been borrowing like crazy, there's no growth, unemployment doesn't move, so what's up?
Originally Posted by Knight of Heaven
