E The Complex Source Of Germany’s Huge Current Account Surplus

In Germany’s case, the trade balance started to improve more than a decade ago, when German employers and unions agreed to restrain wage growth. While workers weren’t thrilled, nonetheless the common view was that the Germany economy was not sufficiently competitive. This amounted to a devaluation of Germany’s production costs within the Euro Zone.

Currently the best way out of today’s imbalance problem within the Euro Zone is not to keep cutting wages in the depressed countries like Greece and Portugal, but to encourage wages to rise faster in Germany. Wages have been rising in Germany—by 2.3% last year—but should increase faster.

The other factor to consider is that Germany, as an ageing society, may have been saving much more than is really needed.

Germany’s  Current Account Balance As A % Of GDP

 

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