Germany cannot both keep a huge external surplus and require strict fiscal and macroprudential discipline from the other euro-zone countries

Germany now has a huge external surplus, which the IMF says is spurring protectionism in the rest of the world. Its external surplus is due in part to the strong competitiveness of German industry, but above all to the very high savings rate of German households and to Germany’s fiscal surplus. Germany does not want to correct its external surplus. This would not be a problem if its counterpart was an external deficit in the rest of the euro zone: Germans’ excess savings would then finance investments in the rest of the euro zone. But Germany is asking the other euro-zone countries to adhere to strict fiscal rules (structurally balanced budgets) and macroprudential rules (small external deficits and low credit growth). This attitude on Germany’s part is illogical and non-cooperative, as the rest of the euro zone cannot absorb or use Germany’s excess savings, which then finance the rest of the world outside the euro zone, i.e. do not contribute to investment growth in the euro zone.