The political economy of the German current account surplus

This chapter discusses a long-standing feature of Germany’s political economy, namely its persistent current account deficit. While it has been criticized by many of the country’s trading partners as a cause of economic difficulties (most recently in Southern Europe during the Eurozone crisis), within Germany is mostly perceived as a success story and proof of the country’s economic competence and competitiveness. The article discusses the historic development of the current account (which also saw lasting deficits after unification), before turning to theoretical attempts to explain the development of the ‘trading state’. The chapter then discusses the domestic and international debates around the deficit, emphasizing the political nature of that debate, before moving on to discuss whether (and if so how) the German government can influence the current account development in the future. The conclusion argues that the current account deficit can be regarded as the exercise of a relative institutional advantage – namelyGermany’s coordinated wage bargaining system, which is highly successful in stabilizing unit labour costs. Being rooted in a consensus between employers and trade unions to exchange non-maximisation of wage proceeds for a guarantee of safe employment, a high degree of persistence can be expected even in the case of politically negative consequences.