German foreign trade surpluses – a problem for the European Monetary Union?

Abstract

In the light of the controversial discussion on the cause and effects to the total economy of the high export surplus of one country and their consequences for other countries, the concrete question as to whether high German balance on current account surplus mentioned is indeed responsible, as alleged, for macroeconomic divergence in the European Union or for balance on current account deficits in other European countries will is addressed in this paper. We examine how and to what extent German export success represents a lasting threat to the stability of the Eurozone and impedes economic recovery in instable countries in the south, or whether it can even offer those countries better chances to overcome crisis and stabilise their economy. The study suggests that politically enforced shrinkage of German exports accompanied by a weakening of the German economy scarcely benefits deficit countries. Due to the very close intertwining of German industrial intermediate inputs import trade with European crisis partner countries, with their great demand for German investment goods exports, a decrease in German exports would not only cause a drop in their exports, but it would also whittle down the basis for public European financial help for handling crisis, help for which Germany provides a large proportion of the liability.