Germany’s current account surplus & spillover effects to Southern Europe

Germany is frequently critcized for harming other Euro Area countries, in particular France, Spain, Italy, Greece and Portugal. By running a large current account surplus (exporting more than importing), it articifially restricts its purchases from other countries, which costs them export revenue, production, and jobs. How much would it actually help these countries, if Germany ended its restrictive policy?

Enno Schröder and I have written two papers on this topic.

1. Where does a German demand expansion dissipate to? Does it reach the countries that need it most in Europe (Italy, Spain, Greece, Portugal)?
Working Paper hosted on the website of the IMKLink
Published version is open-access in the journal World Economy.
We use data from the World Input‐Output Database to fit a closed multiregional input–output model in order to estimate the size of spillover effects of Germany’s final demand on GDP, employment and the trade balance in Southern European countries. We find that spillover effects are rather small. Germany alone will hardly make a significant contribution to the external adjustment process in the European South.

2. How much could a coordinated European policy that includes a demand expansion of countries with a current account surplus contribute to an upswing in the Southern European nations?
Working Paper hosted on the website of the IMKLink






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