The Treasury Department's semiannual report on the international economy and exchange rates usually makes for boring reading. But the latest edition, released this week, broke from that tradition by offering some blunt and much-needed perspective about the German economy: Its heavy reliance on exports is hurting weaker European countries that share the euro.
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Germany, the biggest economy in the euro zone, has long been a major contributor to imbalances in the global economy. It exports far more than it imports and does too little to encourage the growth of domestic demand. That has made it hard for countries like Greece and France to increase their exports and revive their economies. Last year, Germany's current account surplus was 7 percent of its gross domestic product; by contrast, China, which is often criticized for pursuing an aggressive export policy, had a surplus of just 2.3 percent.
Not surprisingly, German officials said the Treasury's comments were "incomprehensible." The economics ministry argued that the surplus simply reflected "the strong competitiveness of the German economy and the international demand for quality products from Germany."
Germany makes things that the world wants to buy. The problem is that the country's obsession with exports comes at a high cost for its neighbors and its own economy. This year, Germany is expected to grow just 0.5 percent, according to the International Monetary Fund, in large part because consumer demand is growing slowly and investment is declining.
There is a lot Berlin could do to raise demand at home. For starters, the government can borrow and spend more to help boost investment. It could also cut taxes on lower-income Germans to increase consumer spending. And it could take more aggressive steps to reverse the demographic trends that are expected to shrink the country's population in coming years. The average German woman has 1.4 children, which is much lower than the replacement rate of 2.1. The government could encourage more births by improving access to child care and providing other benefits and services for parents. It is as much in the interest of Germans to have a more balanced economy as it is for the nation's partners in Europe and elsewhere.
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