Germany’s and the Netherlands’ vicious circle of investing their excess savings abroad

Since the subprime and euro-zone crises, Germany and the Netherlands have invested their excess savings abroad and no longer within the euro zone. This loss of savings weakens investment and potential growth in the euro zone. But it also triggers a vicious circle: It leads to a chronic situation of excess savings in the euro zone, with a risk of deflation; It leads to low inflation and interest rates in the euro zone; And these low euro interest rates reinforce the problem by pushing euro-zone savers to invest outside the euro zone.