Germany’s Budget Surplus: Is Too Much of a Good Thing a Bad Thing?

Taylor Nelson

Taylor Nelson is a research intern at AICGS for the spring of 2018. She contributes to the AICGS Notizen Blog, supports resident fellows with their research projects, manages databases, and helps organize and document AICGS events.

Ms. Nelson is currently in her final semester of her undergrad at Kent State University, with dual majors in International Relations and German Literature, Culture and Translation. Her interests lie in Foreign Policy and Transatlantic Relations, particularly in regards to the relationship between the United States and Europe. She also enjoys learning about other cultures and languages.

Prior to joining AICGS, Ms. Nelson spent a semester studying at the Freie Universität Berlin in Berlin, Germany, and was a founding member and President of Kent State’s German club, Deutschklub Kent. She hopes to pursue a career in the Foreign Service upon graduation in May 2018.

Many who are familiar with Germany and German culture know that saving money and only spending money that one has is a very German trait. Only 36 percent of Germans over age 15 own a credit card, compared with 62 percent of Americans of the same age. This was obvious in my own experience in Germany, where several establishments did not even accept cards, and if they did, usage could warrant anything from a dirty look to a scolding. The German saving culture has dominated the German economy recently, where there has been economic growth the past six years and a budget surplus the past four. In 2017, Germany had the largest current account surplus at $287 billion, followed by Japan at $203 billion. This is unsurprising to many, but some economists are less thrilled with the surplus than the Germans. Could too much of a good thing for Germany be a bad thing for the global economy?

One must understand the reason for Germans’ aversion to debt of any kind; Germany’s attitude toward debt is largely attributed to the period between World War I and World War II, where hyperinflation and massive reparation payments helped create the environment in which National Socialism would thrive. Many Germans recall horror stories from their grandparents of paying five million marks for a loaf of bread, and admonition that those conditions should never happen again. But Germans aren’t saving all their money, or else their economy would not have risen by 2.2 percent in 2017, the highest growth in six years. There has been strong domestic consumption, a boom in the building sector, higher investments by companies and, perhaps most importantly, rising exports.

There is a lot to admire about Germany’s position: unlike in the United States, firms in Germany can invest without fear of unions undermining them because of state-sponsored vocational training and the fact that labor representatives are included in the decision-making process alongside shareholders; Angela Merkel and the Christian Democrats (CDU) are in a financial position where they can lower taxes to promote spending; unemployment is below 4 percent. However, economists gripe that other states, especially periphery European states like Spain and Greece, are bearing the consequences of Germany’s large surplus. When countries like Germany run a large surplus, other countries (like Greece and Spain) must spend more, leading to an economic imbalance and, in extreme cases, economic crisis. The International Monetary Fund (IMF) and the European Commission have been pressuring Germany for years to increase domestic demand and imports to fuel global economic growth, especially in the Eurozone. Economists claim that there is plenty for the German government to be funding with these funds (infrastructure, school buildings, after-school care, and internet technology, to name a few).

The imbalance caused by Germany’s surplus could also be fueling protectionist policies, according to IMF Managing Director Christine Lagarde. President Donald Trump has criticized Germany as having “very bad” trade policies, which he uses to fuel his “America first” rhetoric. This is a stark contrast with Chancellor Merkel’s rhetoric; on June 29, she delivered a speech where she denounced protectionism and isolationism, and more recently expressed the same sentiment at the World Economic Forum in Davos. Although Angela Merkel’s economic mantra is more realistic than Donald Trump’s, she must walk the walk and not just talk the talk of free trade, for the sake of the global economy.

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American-German Institute.