Is Germany a currency manipulator? The answer depends on your definition but we should not feign surprise or outrage at the fact that somebody at some point was bound to complain about Germany’s large and persistent imbalances. Last year, the current account surplus reached 9 per cent of gross domestic product, the world’s largest in absolute terms.
Why is Germany running such a large surplus? The superficial answer is that it no longer has a currency of its own, and thus no nominal exchange rate to adjust. This fails to acknowledge the underlying dynamics. During the eurozone crisis, Germany insisted on fiscal austerity for the bloc as a whole. It also gave itself a constitutional balanced budget rule. This stops the German public sector from running a deficit that could offset the surplus of the private sector. The roots of Germany’s structural surplus lie in the combination of tough fiscal rules and a currency rendered weak by the measures needed to deal with the consequences of the eurozone’s incompetent crisis management.
When Peter Navarro, head of President Donald Trump’s National Trade Council, says the “implicit Deutsche Mark . . . is grossly undervalued”, he has a point. He is also right when he says that “the German structural imbalance in trade with the rest of the EU and the US underscores the economic heterogeneity within the EU”.
