Germany's eurozone bind

Press quote (Reuters)
19 May 2010

As Simon Tilford, the chief economist of the Centre for European Reform think tank points out, if every economy in the eurozone looked like Germany they would all be expected to run trade surpluses, all have minimal labour cost inflation and all have low domestic consumption. "It's a beggar-thy-neighbour strategy," he said. "If everyone is called upon to cut costs and boost export income, then there's massive depreciation pressure and a eurozone wide slump. It would mean big trouble. It's a zero-sum game." Instead, argues Tilford, Germany needs to acknowledge that it is part of the problem. Unless it 'rebalances' its economy - code for raising domestic consumption, which would tend to raise imports and narrow the current account surplus as it stimulates output in Germany's trading partners - then it is trapped in a relationship inside the eurozone where it can't both expect its partners to act like it does and hope that the region is going to be economically healthy...."There's very little acknowledgement of how the structure of the German economy has contributed to this crisis," said Tilford. "A lasting solution will require significant changes from the Germans in terms of their macroeconomic strategy. But they don't seem to accept that, and that is worrisome."