Here, on Project Syndicate.
This is another important post debunking the argument that the export surpluses of Germany, the Netherlands etc are representing the results of good economic policy. I offer some comments.
The German arguments are e.g. in this post. The argument goes that German current account surplus is so large due to high competitiveness, innovation and high quality. By itself, this is true: Made in Germany often equals technical finesse and durability (think Miele, BMW and products for business by Siemens and Voith). The only problem is that in the current situation, in which the equation of German wage suppression (1999 to about 2010), monetary union and deficient European and global demand make the German ‘model’ a) impossible to replicate for anybody else and b) a drain on demand in the rest of the world.
This has been discussed in many places (e.g. here, here, here). As Paul Krugman has suggested at some point: “Germany’s experience can only be generalized if we find some space aliens to trade with, fast.”
The post by Simon Wren-Lewis is also important as it ponders the reasons why Germany would stick by it’s policies. He states that:
arguments about the German current account surplus are beside the point. Macroeconomic policy should not be geared to current account surpluses or deficits, but to economic fundamentals like unemployment and inflation. In the absence of fiscal union, German macroeconomic policy looks OK from a German point of view.
and broader that German policy is based on a false set of ideas about the eurocrisis’ birth and what to do about it. So, as also Yanis Varoufakis has often argued, the economic policy of Germany in the Eurocrisis has its roots in domestic discourses, which by now seem rather deep-rooted (i.e. the Lazy Southerner and the Profligate Mediterranean State).
But actually, the problem lies with the wage suppression in Germany starting around the euro’s introduction: real wage growth has been at best flat and often slightly negative. This has depressed German domestic demand, which was compensated by export successes riding on a wave of European and global growth, which we now know was more than partly credit-led [and that credit mostly came from Germany, the Netherlands and France in the European case]. So while the ‘periphery’ grew using borrowed money, which also caused inflation in wages in many places (Greece, Spain), Germany’s competitive position improved without it ‘doing anything’. This ‘doing nothing’ was nonetheless a carefully constructed labour market partners’ agreement in the German corporatist tradition. (Finland has also often tried this, and in many cases succeeded, as has the Netherlands e.g. with the 1982 Wassenaar Agreement).
Regarding Derviş’ point about what Northern Europe can do:
Northern European countries, which have ample room to increase wages and implement expansionary policies, must do so. This would directly benefit Northern European citizens themselves, while helping to keep the euro down and stimulate growth and adjustment in Southern Europe and the global economy as a whole.
