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Germany records first monthly trade deficit since 1991 as inflation soars
- Proven 4y ago
- shimonabi 4y agoThat's a good thing. They've been violating the Euro treaties by running a surplus against other countries in a common currency area, but no one dared to say a word.
- skrause 4y agoMy guess is that Germany still has a surplus against other euro countries, instead the money is flowing to oil and gas exporting countries. So that wouldn't help.
- DisjointedHunt 4y agoYes, and thus at some level, is unsustainable. ie, There is a point at which they could be running all the surplus they could wish for against the rest of the EU, but the cost of those surpluses offsets any gains to economic growth.
- imtringued 4y ago> but the cost of those surpluses offsets any gains to economic growth. In the export destinations like Greece. For Germans it means supressed wages because they have to compete against Greek wages which means Germany has to sacrifice its productivity gains to provide low priced goods, effectively giving those productivity gains away for free the moment the export destination country predictably must go bankrupt.
- remarkEon 4y agoCan you explain this in more depth? I'm not that familiar with EU laws and treaties. Is it illegal to run a trade surplus? How does that work, functionally?
- lkrubner 4y agoI don’t think it is illegal but it was hurtful to the EU overall: https://archive.nytimes.com/krugman.blogs.nytimes.com/2010/07/12/one-size-fits-one/ https://archive.nytimes.com/krugman.blogs.nytimes.com/2010/0... Of course, you could make the argument that it violated the spirit of the treaties.
- deleted 4y ago[deleted]
- remarkEon 4y agoWhat specific harm is being done here though? Krugman has a tendency to take a lot of underlying assumptions for granted without actually enumerating them. I’m looking to understand why Germany should have to manage its economy based on the aims of the rest of the EU and not their own, which seems to be what’s implied here.
- morelisp 4y agoPut simply, Germany wants (or wanted - we don't talk about the euro crisis much anymore even though it was never really resolved) everyone in the EU to a) trade mostly with other EU members, b) run a trade surplus. This is obviously impossible, but Germans don't want to hear that in a modern economy, for Germany to have no debts means someone else must. They sent moralists to do an economist's job. That being said I have no idea what the OP was on about, it's not illegal, it's just stupid.
- lkrubner 4y ago“* I’m looking to understand why Germany should have to manage its economy based on the aims of the rest of the EU and not their own*” Because Germany has renounced part of its independence and sovereignty by joining the EU, so now it has to do the patriotic thing and think of that larger collective. As a point of comparison, should New York do what is best for New York, or what is best for the country? At least sometimes, we expect New York to sacrifice its own interests and do the patriotic thing for the whole country. As was pointed out many times during the crisis years of 2008-2013, many of the problems in the EU exist because of its partial and unfinished integration. It is very difficult to have a unified currency without also having a unified fiscal policy. As others have pointed out, the EU cannot survive in its current state, either it breaks up or it deepens its integration and becomes a United States of Europe.
- Terry_Roll 4y agoNot just a common currency area, most of the world, but is there anything wrong with that? Somebody has to have savings to stand up to the corporates. Its what Obama's Diesel-gate was all about! Obama (remember him?) was telling Merkel to run a trade deficit, but stepping back, what you have are different countries dictating policy to other countries, in this case the US dictating to Deutschland how to spend their money. The meme being pushed in financial circles is "debt is money", when what they really want to say is the biggest borrowers get to dilute their currency the most and dilute, which can be read as weaken, the purchasing power of other people. So you see countries like the UK ramping up house prices, mortgages creating new money in the absence of the UK actually making anything of any worth, shelter is also on the lower tiers of Maslow's Hierarchies of Needs , the British Media pumping out thousands of hours of property porn to reinforce Asch conformity, is all in all a highly intelligent way to control people using stealth means! init(clever);
- mardifoufs 4y ago
- bobthepanda 4y agoI mean, the US saves very little money and yet was able to stand up to VW Group, so I'm not sure what "has to have savings" has to do with your example. Obama's observation was that you can't run a trade surplus with Southern Europe for decades and then get all surprised when they run out of money to pay you with. In a similar vein, you can't have EU cross-border banks without a EU cross-border insurance deposit scheme, because then one bank can potentially drown a small country, which is what happened during the Eurozone crisis.
- Terry_Roll 4y agoDebt dilutes the currency because money is created every time someone takes on debt, it means your overseas creditors ie other countries get their money back, but its worthless today than in the past, because this is monetary inflation, not to be confused with the man on the streets inflation which is price rises. At the end of the day its just an intellectuals way of keeping the plates spinning and the uneducated in their place. Now it also happens this is a way for banks to wrestle power away from the politicians, just like stock market listed companies can put a ban on recruitment when a new political party comes to power, increasing unemployment. Its hard for Govt's to prove this, because legislation isnt the brightest, in fact, legislation can create fake science. Its a massively complex subject and education is the first step in divide and conquer.
- kken 4y agoThat's an extremely naive thing to say. Do you think the root cause of this does not apply to other European countries? Namely, faltering supply chains in Asia, skyrocketing energy prices?
- jeroenhd 4y agoThis is the first time I've heard about this, could you tell me what treaties they're violating? Barring an economy from running a surplus seems like a terrible trade deal to me, so I wonder why the Germans would ever agree to such a rule.
- shimonabi 4y agoBecause you are not allowed to beggar-thy-neigbour in a common currency area. If Germans are allowed to have a permament surplus, than someone MUST always have a deficit.
- jeroenhd 4y agoWhy? Materials get imported from outside the EU all the time and exports can also go across EU borders. It's not like Americans pay their BMWs with euros. No country has a trade surplus/deficit of exactly 0, or even near 0. There's always at least half a billion going either way. If you know of any treaties that put limits on these numbers, I'd like to know what they are because I'm very curious about the intentions behind the people who would draft something like that. Going by https://trade.ec.europa.eu/doclib/docs/2013/december/tradoc_151969.pdf https://trade.ec.europa.eu/doclib/docs/2013/december/tradoc_... (link says 2013, but document says Q1 2022), Germany had an intra-EU trade surplus of about 0.2 billion euros. Germany is the closest to a perfect balance within the eurozone in the entire EU except for Bulgaria. Their surplus is almost entirely extra-EU, which isn't a problem for EU members.
- imtringued 4y ago>It's not like Americans pay their BMWs with euros. The Greeks do hence they are massively in debt. No, they can't export their way out of debt because that would mean Germany has to export less and import more. Germany is supposed to be the workplace country and Greece must remain soulless suburbia with no job opportunities.
- jeroenhd 4y ago
- ChemSpider 4y agoWhat § would that violate? This must be one of the (many) anti-EU fake news.
- jacquesm 4y agoNo, this is completely in line with everything that the EU is all about. I'm not sure where you got the belief that Euro countries are not allowed to have internal trade deficits, it's inevitable in fact.
- shimonabi 4y agoMerkel said after 2008 that ALL countries in the EU must have surpluses. It was like saying all teams in the NBA must win.
- jacquesm 4y agoThe world is a lot larger than the EU so there is no reason why that could not be the case.
- v4dok 4y agoI rememember in an econ book that we think that exports have the "world" to serve. But in reality most countries trade the most with those closest to them. I wouldn't be surprised if that was the case for the majority of EU countries
- jacquesm 4y agoYes, but don't underestimate the exports that Germany is generating, between all of the high tech there and the car companies you are looking at a substantial exporter. China is #1, the USA (all of it) is #2 and Germany (just Germany, not the EU) is #3. Have a look at their relative populations and appreciate that fully.
- imtringued 4y agoAsia is exporting too (Japan, China, Korea). Australia is exporting. The only ones not exporting, i.e. importing is Africa and South America and eastern Europe including Russia if you ignore their oil exports.
- stewx 4y agoFriendly reminder that trade deficits are not inherently bad. https://www.investopedia.com/articles/investing/051515/pros-cons-trade-deficit.asp https://www.investopedia.com/articles/investing/051515/pros-...
- concinds 4y agoThis is deeply ideological, and wrong. You're using arguments levied at Trump years ago that applied to the US, a mostly services-based economy, and applying them to Germany. Except Germany is a manufacturing- and export-based economy. Take that away, and you have a recipe for economic collapse. Read the FT's article, which includes much more statements from politicians and economists. https://www.ft.com/content/6f325773-bf8a-4e28-9fc1-6bc986ee90fa https://www.ft.com/content/6f325773-bf8a-4e28-9fc1-6bc986ee9... Use the Bypass Paywalls Clean extension if you need to. Or, read what Stratfor (if you have a subscription) has been predicting for a decade now: Germany's slow decline, to be replaced as Europe's power center by Poland. Germany was already facing a worker shortage and inflation. Now the government is discussing rationing gas allocated to German businesses. Beyond the ideological arguments, it's clear that this is going to be a crisis for Germany, and for all Eurozone economies; and their reactions will determine "how bad it gets". We are looking at a probable recession across Europe. By the way, I warned months ago that sanctions against Russia would have a backfire effect: Russia is mostly unscathed, their oil and gas revenues are soaring; meanwhile Germany is talking about rationing. Sanctions don't work in an interconnected economy.
- RC_ITR 4y ago> This is deeply ideological, and wrong. Ok so what is correct then? I’m not seeing the reason trade deficits are inherently bad anywhere in your comment.
- concinds 4y agoTrade deficits are bad for an economy whose entire strength relies on exports. edit: Germany's exports are 48% of GDP for context. And this trade deficit reflects increased import costs, which will hurt businesses since Germany is poor in raw resources. I.e., this is a problem for both the German government & German businesses, and for their whole economy.
- DisjointedHunt 4y agoIt helps to pause and think about the fundamentals in a simple way. For the first time since 1991, Germany is in a situation where the value of all goods and services imported exceeded the value of all goods and services exported. Is this a bad thing? Depends. Germany is a manufacturing heavy economy where energy prices are obviously a major part of input costs. So there is certainly an argument that at some level, this is unsustainable. In the long term, if the economic growth within Germany is able to offset the additional "expense" incurred , then it will not matter a lot. The US routinely runs a trade deficit, but the US economy is one that the world holds at envy for the reasons that it is able to do so. There is plenty of domestic consumption and growth that offsets the massive trade deficits and in a simplified way, the US imports deflationary prices from the rest of the world and exports technology (I said highly simplified) For Germany, they don't have the luxuries that the US does. The question that is crucial now is how long can Germany sustain these deficits while their domestic economy re adjusts or is able to find deflationary forces from energy security etc. If they are unable to do so, then, by definition, they are fucked.
- lumost 4y agoI’m a little suspicious the next set of stories will be about the US and overreliance on now expensive international labor. We keep talking about interest rates and monetary policy, when the reality may be that we need to look at all aspects of policy.
- DisjointedHunt 4y agoThe composition of the US economy is very different with manufacturing taking a smaller role. The US imports deflation from China through cheap manufacturing. Not necessarily labor alone. The US also is a NET EXPORTER of energy and is not hostage to energy suppliers as much as Germany is due to their economy being reliant on Natural gas that can’t be easily replaced in the short term and even in the long term has immense transportation costs compared to cheap pipelines in geographic proximity. The thing to watch here is, the knockover effects and 2nd, 3rd order effects. When there is a gas shortage in Germany. . . Everyone suffers. A much higher portion of their GDP goes to compensate. When gas prices go up in the US, a section of the population “suffer”, but there is a lot more economic tolerance built in.
- qt6rust 4y ago
- newsclues 4y agoPart of me thinks this may be true, and it may have been trying to do so for over a century.
- 88840-8855 4y ago
- Barrera 4y ago> Germany has recorded its first monthly trade deficit [€1bn] since 1991 [the year of reunification] amid soaring inflation and supply chain disruption weighing on the country’s industrial base. Then from Wikipedia: > In 2016, Germany recorded the highest trade surplus in the world, worth $310 billion. ... https://en.wikipedia.org/wiki/Economy_of_Germany https://en.wikipedia.org/wiki/Economy_of_Germany So it's not just the magnitude of the trade balance (negative) but the velocity (sharply downward) that should get attention. The US has run persistent trade deficits (now ~ $50 billion) for years. This brought cheap goods but eviscerated the manufacturing base. You could call it a tradeoff. What the US has going for it though is: (a) the ability to print its own money; (b) the ability to print the world's reserve currency; and (c) the demographics to support a consumption-led economy. Germany has none of these things going for it. The situation is not sustainable. The article implies that the change is not structural (increased competition from elsewhere, for example), but if it is things could get weird real fast.
- _trampeltier 4y agoBloomberg has a nice graph. https://www.bloomberg.com/news/articles/2022-07-04/germany-has-first-monthly-trade-deficit-since-1991-on-exports https://www.bloomberg.com/news/articles/2022-07-04/germany-h...
- frankfrankfrank 4y ago
- BenoitP 4y agoThis is to be understood under the high oil and gas prices and supply shortage. Germany has a huge industrial organic chemistry complex. In comes the oil and gas, which get vapocracked, distilled into base molecules; out goes fertilizers, plastics, medecines, precursors, etc It is so integrated that pipes run from one factory to another. Changes in the input will affect the whole chain.
- deleted 4y ago[deleted]
- algorias 4y agoAnd there is of course a time delay between the prices of the input rising, and the prices of the outputs rising.
- mensetmanusman 4y agoIs the demographic crisis catching up with Germany? https://www.iamexpat.de/career/employment-news/germanys-skilled-worker-shortage-reaches-new-heights https://www.iamexpat.de/career/employment-news/germanys-skil... Sounds like a significant shortage relative to their population and GDP…
- DisjointedHunt 4y agoNo, that’s a valid point you make, but sadly, not relevant in the present context. The constituent factors of the trade imbalance being spoken about here is a sharp rise in energy costs. For decades, Germany has led the EU in repressive energy security policies including a heavy focus on shutting down existing Nuclear facilities that typically have >90% uptime in favor of cyclic sources. For example, less than 10% of installed renewable capacity in Germany right now is usable: https://twitter.com/burggrabenh/status/1543388878584823810 https://twitter.com/burggrabenh/status/1543388878584823810 Thanks to which, Germany is presently generating 72% of their electricity through very dirty and very expensive coal https://twitter.com/bjornlomborg/status/1543190255477706752 https://twitter.com/bjornlomborg/status/1543190255477706752
- jpdus 4y agoSorry, but your comment is misinformed and just wrong and the sources are intentionally misleading. In H1 2022 >50% of German energy consumption was from renewables [1] and Germany has currently significantly lower spot-market prices than France, which went full-on nuclear [2]. The sharp rise in energy costs has nothing to do with nuclear (at least not now - if the society 20-30 years ago had invested more in nuclear, things could've turned out differently. Now, nuclear is neither feasible nor economically viable..) and everything to do with gas prices, which dominate energy costs due to the merit order. Coal is currently actually still used below capacity while gas plants are running at record utilization, thanks to profit-maximizing utility companies exploiting this. Unfortunately, Germany had a government for the last 16 years that cared a lot for preserving the status quo for incumbents (cheap gas!) and neither companies nor consumers were willing to pay a premium for energy security/resilience. We're now paying the bill for that. [1] https://mobile.twitter.com/energy_charts_d/status/1542804890258391041 https://mobile.twitter.com/energy_charts_d/status/1542804890... [2] https://mobile.twitter.com/energy_charts_d/status/1543915767846019072 https://mobile.twitter.com/energy_charts_d/status/1543915767...
- _ph_ 4y agoMost obvious explanation: the amount of money spent by Germany for energy imports, especially gas being bought on the sport market, has skyrocketed. That is a lot of money going to the balance without requiring the exports to be reduced - which they probably have been too. A lot of German industry depends on parts from Ukraine, like VW getting their cable trees from Ukraine manufacturers.
- someweirdperson 4y agoDoes this include purchase of foreign stocks? "Importing" companies? In that case I have contributed my fair share of that deficit.
- mr_toad 4y agoNo, you’re swimming upstream. https://en.m.wikipedia.org/wiki/Capital_account https://en.m.wikipedia.org/wiki/Capital_account
- v4dok 4y agoI can't help having a bit of freudenschade. The mighty Germans F it up. They didn't want to break eggs with Turkey and get advantage of the SE Med gas reserves. They didn't like nuclear after bashing it for so long. And of course, they got dragged into a war that they are too small for. Sad thing is that 1. Whole EU has to suffer because of this 2. You can't stop thinking "What it would be like if Germany actually stepped up to lead with understanding"
- deleted 4y ago[deleted]
- TMWNN 4y ago>And of course, they got dragged into a war that they are too small for. There is no inherent reason why Germany cannot singlehandedly support/fund Ukraine's war with a country with an economy 40% Germany's size. That it cannot is a condemnation of every German government over the past 30 years. (That NATO's European members cannot do so either, and that the US is providing the bulk of the Ukraine aid, is correspondingly a condemnation of every member government over the past 30 years, although the newer members get a pass because they are a) small, b) poor, and c) actually meet the NATO 2%-of-GDP guideline.)
- mr_toad 4y agoAt this point any two of the UK, France or Turkey could probably take on Russia by themselves. Turkey could probably do it by themselves. None of them want to get in an expensive war. And Putin is probably bluffing about using nukes, but who wants to risk it.
- v4dok 4y agoIMO, you severely underestimate how difficult wars are now. Russia has not even general mobilization active, Moscow is running "business as usual" (AFAIK). Taking any "modern" military completely out is a guaranteed war of attrition at this point (and a MAD in itself)
- blub 4y ago
- trhway 4y agoI think that demonstrates the typical issue of not having leadership change for a long period of time. Under Merkel - who grew up in socialist East Germany - the Germany got a lot of structural characteristics of a socialist economy, in particular being dominated by large manufacturers who have been getting preferential treatment from the government, and losing the ability to adjust and maneuver. She also didn't have that gut check of dealing with Russia and has put all the Germany's eggs into one basket which has been held by Putin. Thus what happens right now is a light form of shock-therapy of getting adjusted back to the new reality of the current global economy. Their leadership still seems to hope that some form of the old trade relationship with Russia will survive. The faster they ditch that hope the faster the shock-therapy will get completed. Germany needs to bite the bullet and massively build the LNG terminals (one would expect that North Stream 2 landing point has all the connection into the infrastructure to take it in). The second best thing Germany can do for its economy is to supply Ukraine with a lot of weapons. Germany naturally has significant hesitancy to meddle into Ukraine war, yet the faster, stronger and earlier Russia stopped - the better for everybody, including Germany. Russia getting onto the Poland border is much worse than Russia forcefully stopped where for example it is now. Germany for now has been very slow at supplying weapons to Ukraine and thus prolonging the chances of Russia moving closer to Europe.
- YarickR2 4y agoBest thing Germany could do is stop supplying weapons to Ukraine and convince Zelensky to agree to Russia's terms. EU gets it's buffer state and cheap gas, Russia gets it's buffer state and peace of mind , Ukraine.. Well, Ukraine gets ripped apart . Revolutions fail every so often, this will be one of such cases
- kevin_b_er 4y agoYou really think appeasement will work this time? It hasn't in the past.
- trhway 4y ago"No Ukraine" is the only Russia's terms. Even Russian state TV propagandists say that anything less is just a temporary ceasefire. There is just no way for Russia, being a full blown fascist state now, to get peace of mind.