Germany’s massive excess savings would not be a problem if the euro zone were a true currency area

Concern for the future results in considerable precautionary saving in Germany by both the public and the private sector. If the euro zone were a true currency area, Germany’s excess savings would not be a problem, as they would finance investments in the rest of the euro zone and would not weaken the euro zone’s short- or long-term growth. But the euro zone is not a true currency area: despite the absence of currency risk, there is no capital mobility between the euro-zone countries. Under these conditions, Germany’s excess savings therefore reduce: The level of euro-zone GDP by 3 percentage points in the short term; Euro-zone growth by around 0.3 percentage point per year in the long term. Restoring capital mobility between the euro-zone countries is therefore vital . .