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Report: Germany’s Economic Nationalism Could Mean Devastation For The EU

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Robert Donachie Capitol Hill and Health Care Reporter
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Germany has incredibly large current account surpluses that could mean devastation for the European Union (EU), with some suggesting a German exodus from the Eurozone.

The term “current account” refers to the sum of the balance trade (goods and services minus exports), the net income from abroad, and net current transfers. Germany exported around $70.5 billion and imported $60.7 billion, reports the Financial Times.

The IMF estimates that Germany’s current account surplus is between “3 to 6 percent of GDP too high,” and the exchange rate Germany “faces is now between 10 and 20 percent too low,” reports American Enterprise Institute (AEI).

Germany’s account surplus is about three times higher than China. The U.S. put Germany on a watchlist for nations where “foreign-exchange practices” give a nation “an unfair trade advantage over America,” Bloomberg reports. If Germany maintains this large account surplus, experts warn it could be devastating to the global economy.

The EU requires Eurozone nations to synchronize their economies, and this is arguably why the EU’s largest economies help bolster nations experiencing budget crises like Greece, France, Romania, Croatia, Spain, and Portugal. Achieving “integration” and “harmonization” of economies as required in European treaties will be more difficult with German current account excess.

Experts note that there are two approaches to fixing this large imbalance in German trade. The first option entails Germany inflating its currency for imports and exports. The other option is to “loosen German domestic fiscal and monetary policies to boost domestic demand to make up for the reduced support to the domestic economy from the external sector,” according to the AEI.

These measures are unlikely to take place, and with the European “single market” struggling following the Brexit decision, it appears the German imbalance will likely increase.

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