We often forget that Germany (like the rest of Europe) is integrated or fused in a way that makes analysis of baskets of currencies difficult. Here’s what I mean: if Germany was to trade using its former Deutsche-mark and not the Euro, its currency rate or parity was register smaller imbalances. As of February 09th, Germany registered the world’s largest current account surplus, beating China. Germany’s mercantilist policy of favoring Euro-denominated exports permits it to use a weak currency.
For team Trump, this is another reason to distain both our rules based economic order, the European Union and NATO, all remain bulwarks for German national consciousness. If anything, Asian geopolitical consciousness is far more agile than European. We simply don’t have viable replacements for the E.U. or NATO. If Putin were to accept reform the Russian political economy out from its authoritarian trajectory, it is possible that market based solutions in Moscow could alleviate Germany’s dominant current account surplus by linking historical competitive animus between Moscow and Berlin.
As it stands now, Berlin really has a savings glut, investment gaps and wide swings in its VAT indices. As it is with Japanese domestic industries, these are non-starters for Germany.
In the end, European nation states are going to have to begin reforming themselves and competing; this means ending the subsidies, the monopolies and the overt accommodative monetary policy that has only sought velocity at the expense of competitiveness.
Get ready for nationalism and volatility, a redo of 1973. Is Volcker & Taylor ready for Bretton-Woods II?