On November 3, Paul Krugman wrote a column in The New York Times called “Those Depressing Germans”: “German officials are furious at America, and not just because of the business about Angela Merkel’s cellphone. What has them enraged now is one (long) paragraph in a U.S. Treasury report on foreign economic and currency policies. In that paragraph, Treasury argues that Germany’s huge surplus on current account – a broad measure of the trade balance – is harmful, creating ‘a deflationary bias for the euro area, as well as for the world economy.’
“The Germans angrily reject this argument. ‘There are no imbalances in Germany which require a correction of our growth-friendly economic and fiscal policy,’ declared a spokesman for the nation’s finance ministry.
“But Treasury was right, and the German reaction was disturbing. For one thing, it was an indicator of the continuing refusal of policy makers in Germany, in Europe more broadly and for that matter around the world, to face up to the nature of our economic problems. For another, it demonstrated Germany’s unfortunate tendency to respond to any criticism of its economic policies with cries of victimization….”
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The European Commission is examining whether Germany’s export surplus poses a danger to Europe’s financial stability. The results of the investigation will be presented in April, EU Commission President José Manuel Barroso announced on November 13.
La Stampa commented on November 14: “So it exists after all, the European Commission! The minimum of common governance that is indispensable for the Eurozone consists precisely in calling the stronger nations to account…. Germany must learn to take it more easy and ensure that all Europeans benefit from the outstanding performance of the German export industry….
“This is the general tenor of the advice [to increase domestic demand], which cannot be interpreted as a request for handouts by the countries of Southern Europe…. The Commission’s initiative shows that the obligations regarding neighbour states apply to all countries – without exception.”
No country should be allowed to carry a surplus because one country’s surplus is another country’s deficit. We should re-examine John Maynard Keynes’ idea of the use of the “Bancor” to settle international money activities. This would avoid the problems that the distortion of undervalued currencies cause in international trades.