February 09, 2012
A column by Norbert Walter in the NYT defended Germany against complaints over its trade surplus by pointing out that its export industry acts as an engine for Europe’s economy. He accurately points that Germany’s export industry boosts demand for supplier industries in Netherlands and France. He then inaccurately asserts that:
“unemployed workers in Madrid or Athens can easily move to Munich or Cologne for work.”
We know that unemployed workers in Madrid and Athens cannot easily move to Munich or Cologne because in general they don’t. Prior generations of workers from Spain and Greece did often move to Germany and other northern European countries in search of work, but this practice has become much rarer in the last two decades.
Walter’s argument that Germany, with an aging population, should have a trade surplus is reasonable, except the surplus should not be with other countries with similar demographics. In standard economic theory we would expect to see Germany have large trade surpluses with rapidly growing developing countries like China and India that would be easily able to repay the debt incurred.
Slow growing countries like Greece and Italy will not. Germanys cannot both want a large trade surplus with these countries and then complain about their debts. When it makes such complaints, Germany is complaining about its own behavior as much as that of Greece and Italy, since there are no borrowers where there are no lenders.
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