Germany has never had a cost-competitiveness advantage over the other euro-zone countries: Its external surplus does not result from a real undervaluation

It is often claimed that Germany benefits from a real undervaluation within the euro zone, hence its external surplus. This claim has led to calls for a sharp increase in wages in Germany. But in reality Germany has never had a cost - competitiveness advantage over the other euro-zone countries, neither in industry nor in services (which is important, as industry consumes a lot of services). So Germany’s external surplus does not result from strong cost competitiveness or a real undervaluation, but from other causes: Its high level of household savings; Its mostly restrictive fiscal policy; Non-cost competitiveness: innovation, corporate modernisation, product quality. The only available instrument to reduce Germany’s external surplus is therefore not wage increases but a more expansionary fiscal policy.