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Thursday, January 9, 2014

Euromoney - "Criticizing Germany For Its Surpluses is Nonsense!"

Surprisingly, Euromoney comes to the defense of Germany in the debate about surpluses in external accounts. Just one example: 

"The logic is that German external surpluses detract from growth elsewhere as other countries must have a matching deficit to balance the global books. The surplus is said to be because Germans are not consuming and importing enough of others’ goods and services. So the German surplus hits the recovery prospects elsewhere. But these claims are nonsense".

Personally, I am no great fan of either/or argumentations, be that in this debate or in others. There is almost always more than one option. I will below describe an option which has not been discussed much in the media.

There is no question that money will continue to be recycled from North to South; either voluntarily or not. The point of Germany-bashers is that Germany should increase domestic demand so that Germans buy more products (imports) from other countries such as Greece. Fine! Let's say that all Germans get a 10% increase in net earnings and spending power increases accordingly. Where is the assurance that they will buy a lot more from Greece? What would/should they buy from Greece?

If money cannot be recycled from North to South through the current account of the Balance of Payments, it must be recycled through the capital account. The largest item in the capital account is typically loans. However, there no longer is great appetite on the part of foreigners to make loans to Greece.

Readers of my blog will have guessed by now what I am getting at --- it is foreign investment. Foreign investment would also be a flow of money from North to South. Except, the money doesn't flow South so that the South can spend it on imports. Instead, it flows to the South to be invested and to stay there. AND: to increase the productive capacity of the South so that the South can make more of the products which it consumes (thereby reducing imports) and hopefully even make products for exports.

Not to mention the fact that foreign investment is also the most efffective form of know-how transfer!

The justification for this attack is that German external surpluses must detract from growth elsewhere as other countries must have a matching deficit to balance the global books. The surplus is said to be because Germans are not consuming and importing enough of others’ goods and services. So the German surplus hits the recovery prospects elsewhere. But these claims are nonsense.

Full article: http://www.euromoney.com/Article/3291907/CurrentIssue/90598/Against-the-tide-Dont-be-beastly-to-Germans.html?copyrightInfo=true
Visit http://www.euromoney.com/reprints for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.
The justification for this attack is that German external surpluses must detract from growth elsewhere as other countries must have a matching deficit to balance the global books. The surplus is said to be because Germans are not consuming and importing enough of others’ goods and services. So the German surplus hits the recovery prospects elsewhere. But these claims are nonsense.

Full article: http://www.euromoney.com/Article/3291907/CurrentIssue/90598/Against-the-tide-Dont-be-beastly-to-Germans.html?copyrightInfo=true
Visit http://www.euromoney.com/reprints for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.

2 comments:

  1. Explain please how you get private investors to invest in a country with such a huge debt overhang.

    Meanwhile why do you post to greeks who have no money for investment?

    ReplyDelete
  2. It is exactly because Greeks have no money for investment that I post to Greeks to reinforce the point that they need foreign investment.

    When Cuba had reached the end of the line of foreign subsidies from the former Soviet Union, even the Communist Cubans wised up to the fact that they needed to attract foreign investment --- and they got it (much from Canada).

    Read this post which I originally wrote 3 years ago. If you have questions, we can discuss them afterwards.

    http://klauskastner.blogspot.co.at/2012/09/an-economic-development-plan-for-greece.html

    ReplyDelete