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Stubborn Germany Rejects Trade Criticism
(nicoolay/Getty Images)
(nicoolay/Getty Images)

Stubborn Germany Rejects Trade Criticism

Walter Russell Mead

With German trade policies coming under attack from the Trump administration, Berlin is mounting a full-throated defense of its high trade surplus. The Wall Street Journal offers a look at how Germany is defending itself and deflecting criticism:

“There is some reason to believe that Germany’s current-account surplus might have passed its zenith and will shrink markedly in the current year,” the central bank said.

It argued that the surpluses were “the result of numerous, mainly private economic decisions both domestically and overseas,” meaning that they “can hardly be steered sensibly using political tools.” Many Germans think it is reasonable for their aging society to want to save. […]

Germany’s Wise Men took a similar tack. They blamed the surplus on temporary factors such as lower oil prices, on the nation’s aging population, and on the easy-money policies of the European Central Bank.

It is not news in itself that Germans stiffly reject criticism of their trade surplus, or indeed of any of their other problems. Economic self-righteousness has been a hallmark of German political culture since the currency and economic reforms of the Adenauer-Erhard era launched the Wirtshaftswunder that transformed postwar Germany into the powerhouse of Europe. The German economic success that stabilized German democracy, made Germany a more just society than ever before, and contributed mightily to the West’s strength in the Cold War was and is a legitimate subject for national pride, and it isn’t surprising that post-1945 Germans are deeply attached to this success and fiercely defend it. German success at recovering from the war and then rebuilding East Germany largely at their own expense is praiseworthy and deserving of respect.

However, the story is never as simple as it looks. To almost everyone in the world who isn’t German, the current situation of the euro is a major contributor to the German trade surplus—and to the discouraging economic performance of so many other Eurozone countries. The problems of the south keep the euro low, by forcing the ECB into super-easy monetary policies lest countries like Greece and Italy fall off the map. This means that the normal processes of currency adjustment don’t work: Germany’s trade surplus, now bigger than China’s, doesn’t lead to an appreciation of Germany currency, reducing the competitiveness of its exports. At the same time, the inability of the southern countries to let their currencies depreciate even farther makes it harder for them to grow their way out of their current troubles.

Germans like to think that this isn’t Germany’s responsibility or problem, and Germans can make some strong arguments in their defense. For one thing, Germany never wanted the euro. The euro isn’t a fiendish German invention forced on an unwilling Europe; it was a French idea that Germany somewhat reluctantly accepted, as the price of German unification. Second, in the beginning, the euro hurt Germany rather than helping it. The German mark was valued unrealistically high against the new currency, and for the first few years it was German industry that suffered from an overvalued currency while France, Italy and others enjoyed the benefits of lower interest rates. Germany—which was struggling with the heavy burdens of unification at the same time—underwent painful economic and social reforms in order to adjust to life in the eurozone. This is what Germany now wants the French, Italians and Greeks to do; what, Germans ask, is wrong with that? Accepting the healthy discipline of the euro enabled Germany to reach a new era of prosperity; why can’t other countries do the same?

Finally, as to the charge that the currently undervalued euro gives German goods an unfair advantage in global trade, Germans point out that this policy, too, isn’t Germany’s idea. German economists and officials want a tighter policy from the ECB, a policy that would, they say, increase the value of the euro. So why, they say, should Germans feel guilt about currency that they didn’t want that administered by policies of which they don’t approve? Germany reforms, others don’t—and Germany is supposed to bear the blame for the resulting messes and imbalances?

And meanwhile, who is doing the criticizing? Who is standing on this higher moral ground from which they pour scorn on Germany? The feckless Americans with their history of electing clown-presidents, engaging in stupid wars, and running up massive deficits? The disingenuous French, who have been caught in the euro trap that they craftily designed to hobble the Germans? The scheming Italians whose corrupt political system demands regular infusions of cash to buy off the demands of its feckless south? The cheating Greeks, who lied their way into the eurozone and scream “Nazis!” every time someone tries to collect a debt or enforce an agreement? The perfidious Britons, who wrecked the EU by forcing a reckless expansion that made it unworkable before walking away from a disaster they did so much to create?

German unhappiness with the status quo is real. Many Germans believe that if the ECB would only enforce the rules strictly and force the southerners to behave more like Germans, then ultimately all Europe would be as successful and as prosperous as Germany.

The trouble is that it can’t happen.

Politically, the southerners are strong enough to keep the Germans from administering what Germans think is the necessary dose of austerity and tough love—and the Germans are strong enough to keep the southerners from getting the kind of relief the southerners want.

This is the latest form of Europe’s classic dilemma: that Germany is too small to run Europe, but too big for Europe to work without or against it. The status quo is weakening the EU and damaging the transatlantic relationship. The German economic establishment is as certain as ever that everything that is wrong is the fault of other people who just don’t have the will or knowledge to do things the right (German) way, but history is losing patience with the Merkel Consensus. Putin is probing Europe’s eastern and southern border zones, and that Turkey is contemplating a radical change in foreign policy orientation. Populist forces continue to gain ground, and the collapse of order and prosperity across the Middle East and North Africa continues to propel more migrants north.

The first era of postwar German statesmanship prioritized economics over everything else; the times are coming when German statesmanship must put politics first. Germany cannot prosper indefinitely as the political and security order around it degrades.

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