Germany's surplus Thomas Lohn/AFP/Getty Images

How to Reduce Germany’s Surplus

It stands to reason that Germany cannot simultaneously reduce its current-account surplus and continue to extend loans to other countries that have run deficits, and failed to maintain fiscal discipline. If all parties involved could reach this basic understanding, that alone would be a major step in the right direction.

MUNICH – The Economist was right when it recently reported that Germany’s current-account surplus is too high. But why is the German surplus too high? Some say that Germany has a high export volume because it manufactures high-quality products, while others argue that Germany imports too little, because its wages are too low.

Still others point out that, by definition, a country’s current-account surplus is equal to its capital exports. Germany thus has a surplus of savings over investments, and needs to save less and invest more.

Of course, the German current account surplus also reflects deficits in other countries, not least the United States, which accounts for about one third of the value of current-account deficits worldwide. So, one could just as soon call on deficit countries to increase their competitiveness, reduce wages, and save more while investing less.