The German media are always very honest and open. They simply impartially report on everything that is worth knowing and they do the best they can to explain complex matters to citizens, so that, as the truth commission of the Der Spiegel says anyway, the world can become a bit a better place.
This is wonderful! Only sometimes, but only very rarely and only when there is no other way and when the fatherland is at stake, a German newspaper or actually all newspapers and all media will decide to conceal something. It is a difficult decision to make. The ladies and gentlemen journalists look deep into their hearts before eventually deciding that it is better not to annoy the reader with something that is just too unpleasant.
The German current account surpluses are one of these annoying subjects. It is unpleasant because, while we realise that we upset half the world with it, we fail to find to a good line of defence for ourselves. The thing refuses to go away. Instead, it continues to get worse. So, let’s forget about it, let’s close our eyes, ears and mouth.
The German press has yet to report that the figure of the new German current account surplus for 2015 has been released and that it marks a new disastrous record. There is, of course, so much other interesting stuff to write about. This neglect is not intentional, it is pure coincidence. The only article I found on it had been published in Die Welt, a seventy years old quality newspaper. A financial economist defends the German surplus – what else did you expect (see here)?
Two hundred fifty seven billion euro: that is how high the German current account surplus was last year. With a GDP of 3.000 billion, this is close to 8.5 per cent of GDP. It was expected by the forecasters. How nice that the target has been reached! Where is the cheering and where are the firecrackers?
That there are other ways to deal with the subject, the German media already showed often enough. The journalists will always defend the surpluses – the more the merrier. Every crooked argument is being accepted and every good argument is being destroyed or ignored (we have shown this here). When, in recent years, the German surplus with the countries of the European Monetary Union fell, all media wrote about it and celebrated this excellent news: this was proof that the German model is working and the other countries are now finally catching up (I explained this recently here).
Now, unfortunately, this too is over. The German surplus again significantly increased with Europe as a whole and it is even also increasing with the still ailing euro zone (Figure 1).
The German surplus, which has again been growing slightly since 2014, widened to twenty-two billion euros in the past year (the blue curve) with EMU members. This happened in a context in which large parts of the euro zone found themselves in a recession and in which the entire euro zone was close to stagnation. With all the EU members the German surplus increased by more than 30 billion (the red curve).
I have to be very clear about this: it means that Germany once again exported some of its unemployment to a region in which unemployment is much higher, indeed, German unemployment was exported to a region were the unemployment rate is more than twice as high as in Germany. As Figure 2 shows, surpluses increased with France and Italy, among others.
This was exactly what had to be expected in our view because the gap in competitiveness which was created by the German wage dumping still exists and its effect continues to unfold. The negative income effect (i.e. the effect of the recession in the importing countries from the import from Germany) did of course not disappear: today the economy in these countries is no longer shrinking, it is ‘only stagnating.’ This means, and the new wonderful German balance of 2015 is clear evidence for it, that the euro crisis is just as virulent as it was during the last ten years.
You can read in the second part how this development is to be assessed in the light of the so-called Sinn-hypothesis and the notion, which is widely accepted in German by the right and the left alike, that it is the outflow of German capital that explains the current account surplus. The simple question that then arises is why so much German capital flowed into other European countries. Were the interest rates in these countries higher than in Germany? Has there been a building boom somewhere? Comically enough, neither Mister Sinn nor his expert colleagues of the left feel obliged to answer these questions. Let’s give them a push.