Ambrose Evans-Pritchard of the Daily Telegraph reports that the International Monetary Fund is criticizing Germany for running too large a trade surplus with the other European Monetary Union states (those EU members who also use the euro). Apparently the surplus violates EU law and requires that Germany pay a 2.4 billion euro fine. The economic geniuses at the IMF claim that Germany’s trade surplus is “economically destructive” in that it harms weaker EMU states who suffer a “liquidity trap”, meaning that they cannot debase their currencies to spur exports (they use the common currency, the euro, you see). The IMF admits that Germany has achieved its trade surplus in large part by holding down wages, something that the weaker EMU states refuse to attempt for fear of the dreaded “deflationary trap”. How keeping wages in line with real demand is a trap goes unexplained by the IMF.
The reality is that only Germany has displayed cost discipline, whereas other EMU states want to borrow, print, and inflate their way out of difficulty rather than confront radical unions about getting wages in line with demand. As long as we are discussing reality rather than economic phantoms, the reality is that the European Central Bank itself aids and abets Germany’s surplus by allowing the deficit nations to borrow newly printed euros to support their failing welfare states. The fact that this action violates the Maastricht Treaty, which established the EMU, is ignored by ECB bureaucrats because it does not allow room for Keynesian monetary stimulus.
Germany has fought the ECB for years over its faithlessness in honoring solemnly negotiated treaties that enticed Germany to scrap its greatest post war achievement–the beloved deutsche mark. It is past time to bring it back. Patrick Barron