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Του Desmond Lachman
If the European economy is not to lose yet another decade, Europe needs to shake itself free from its currency shackle. This makes it all the more urgent that Germany exercise real leadership in Europe by now exiting the Euro.
Among the most troubling imbalances in today’s global economy is the massive German external current account surplus. Yet stuck within the Euro, Germany is unable to allow its currency to appreciate without at the same time making the currency it shares with those hapless economies like Spain and Italy appreciate as well. To square this circle, Germany would be doing both Europe and the global economy a great service if it were to now exit the Euro. That Germany is running a disturbingly large external imbalance is hardly open to question. According to the most recent official balance of payments data, Germany’s external current account surplus rose to the highest level on record in March 2016. It is now on track to remain above 8 percent of GDP for the year as a whole. Making this surplus all the more troubling is the fact that it is occurring at a time that the German economy is cyclically in a very much stronger position than that of its European partners.
It is little wonder then that the International Monetary Fund considers that the German current account surplus is around 5 percentage points of GDP too high and that the German real exchange rate is considerably undervalued. Back in July 2015, the IMF estimated that the German real exchange rate was undervalued by between 5 and 15 percent. However, since then the Euro has depreciated by around 10 percent, which would make the German currency undervalued by between 15 and 25 percent according to the IMF’s methodology.
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