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Surmounting the German Surplus

Germany’s substantial and persistent current-account surplus has divided European politicians and economic policymakers for years, because few can agree on its ultimate causes and proximate effects. But, for Europe’s sake – and Germany’s – these and other disputes will have to be resolved by the new German government that emerges from this month’s federal election.

PARIS – Germany’s large and persistent current-account surplus was scarcely mentioned in a recent electoral debate between Chancellor Angela Merkel and Martin Schulz of the Social Democratic Party. That may not have bothered Germans; but for many outside of Germany, it was deeply troubling, as Germany’s external surplus has been roiling political debate in many countries for several years.

Leading the charge against Germany’s huge trade surpluses, no surprise, is the arch-protectionist Donald Trump, who accuses Germany of pursuing mercantilist policies that severely harm the United States’ economy. And many European leaders – including some within a European Commission often said to be in Germany’s back pocket – have similarly blamed Germany for much of the economic distress in the eurozone over the past decade.

Germany’s critics argue that its surplus reflects a perverse obsession with fiscal prudence, which has not only constrained demand in Germany, but also imposed a decade of austerity on the rest of Europe. But such criticism has not gone unanswered: many German economists have responded with forceful defenses of their country’s policies, though often using arguments that baffle their fellow economists.

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