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Confindustria report bills Germany’s surplus as “unsustainable”

by Carmine Fotina

According to a report by the Centro Studi Confindustria (CSC), Germany is making the correction in the foreign accounts of the Eurozone more difficult because the surplus of Europe's strongest economy remains higher than those of the other European countries at “unsustainable levels”. The Research Centre of Confindustria underscores that during the crisis all of the European countries with a deficit adjusted their accounts with foreign countries, while “ the core countries didn't do anything to reduce their surplus.” And, in this way, to adjust the accounts the countries with a deficit had to recover their price competitiveness and reconsider their standards of living. According to the study, this created deflation and a reduction in demand that were not compensated, as would have been logical and appropriate, by expansive politics in countries with a surplus, especially Germany.

The CSC in its report focuses on the imbalance inside the Eurozone pointing out that during the crisis, the balance between the Italian current accounts passed from -3.5% of the GDP in 2010 to +1.5% in 2014 and the Spanish one moved from -9.6% in 2007 to +0.5%. Germany, instead, remained substantially unchanged at a level (7.1%) that “is excessive both according to the most basic economic principles as well as based on Europe’s agreed alarm levels,” underscores the report. The so-called sixpack, a series of measures for the economic stability of the European Union, sanctions that a surplus cannot be higher than 6% of the GDP.

“It's true that the surplus of Germany towards the rest of the euro area has cancelled itself (from 2.9% of the GDP in the first half of the 2007) but through less exports towards the other euro countries rather than through increased imports, which instead has fallen.”
The result: the internal demand in the euro area is weaker, and employment and incomes are lower. “In other words, there is a reduced well-being for everyone, including the Germans. And deflation in the entire area.”

To combat this - it is explained in the report - the ECB must intervene with measures that, alone, will not be enough. To tackle the situation, it is necessary to stimulate the internal demand through budgetary policy. That's a stimulus that the Juncker plan does not guarantee. Therefore, what is needed is more dynamism in terms of prices, consumption and investments in those countries with a surplus, in particular, in Germany, to rebalance the weight of the adjustment and to limit the negative effects, which have already been felt by the German economy itself.