1. © RAINER MAURER, Pforzheim - 1 - Prof. Dr. Rainer Maurer Digression: Are Germany's Trade Surpluses Unsustainable for Other Countries?

2. © RAINER MAURER, Pforzheim - 2 - Prof. Dr. Rainer Maurer ➤ Criticism from the French minister of finance Christine Lagarde: ■ Germany's trade surpluses (= X-M > 0) are "unsustainable" for other countries. ■ Germany's trade surpluses are built on "too low wages". ■ Germany should boost domestic demand to "help deficit countries regain competitiveness and sort out their public finances". Digression: Are Germany's Trade Surpluses Unsustainable for Other Countries? "Could those with surpluses do a little something? It takes two to tango."

3. © RAINER MAURER, Pforzheim - 3 - Prof. Dr. Rainer Maurer ➤ What is the relationship between trade surpluses and domestic demand? ■ Expenditure account of GDP: Y = Consumption (C) + Gross Investment (I) + Government Consumption (G) + Exports (X) – Imports (M) Y = C + I + G + X – M Y - C - I – G = X – M => (Y - C↑ - I ↑ – G ↑ ) ↓ = (X – M) ↓ Digression: Are Germany's Trade Surpluses Unsustainable for Other Countries? Domestic Demand ↑ Trade Surplus (Net Exports) ↓

4. © RAINER MAURER, Pforzheim - 4 - Prof. Dr. Rainer Maurer Source: SVG, Jg. 2004/5; 1) Including Change of Stocks

5. © RAINER MAURER, Pforzheim - 5 - Prof. Dr. Rainer Maurer Digression: Are Germany's Trade Surpluses Unsustainable for Other Countries? ➤ What are the reasons for Germany's trade surplus? ■ Why have other countries a lower trade surplus? ■ A comparison of GDP by the expenditure account provides some useful insights, as the following tables show:

6. © RAINER MAURER, Pforzheim - 6 - Prof. Dr. Rainer Maurer

7. © RAINER MAURER, Pforzheim - 7 - Prof. Dr. Rainer Maurer

8. © RAINER MAURER, Pforzheim - 8 - Prof. Dr. Rainer Maurer

9. © RAINER MAURER, Pforzheim - 9 - Prof. Dr. Rainer Maurer

10. © RAINER MAURER, Pforzheim - 10 - Prof. Dr. Rainer Maurer Source: SVG, Jg. 2004/5; 1) Including Change of Stocks ➤ A low gross investment share in GDP means low net investments, if capital depreciation is high. ➤ As we will see in Chapter 4:  Low net investment means low growth rate of the capital stock.  A low growth rate of the capital stock (≈ the number of machines, which can be used to produce GDP) means low GDP-growth. ➤ Is Germany risking its long-run growth performance by exporting to much?

11. © RAINER MAURER, Pforzheim - 11 - Prof. Dr. Rainer Maurer Digression: Are Germany's Trade Surpluses Unsustainable for Other Countries? ➤ Why is the German gross investment ratio between 3 % and 4 % lower than the average of countries? ■ A comparison of the structure of EU, German and French gross investment provides some useful insights:

12. © RAINER MAURER, Pforzheim - 12 - Prof. Dr. Rainer Maurer Digression: Are Germany's Trade Surpluses Unsustainable for Other Countries?

13. © RAINER MAURER, Pforzheim - 13 - Prof. Dr. Rainer Maurer Digression: Are Germany's Trade Surpluses Unsustainable for Other Countries? ➤ The comparison shows: ■ German investment is lower than the average in Housing Construction and Other Construction. ■ Explanation: ◆ Housing Construction is lower because population growth in Germany is lower than in other countries. Cure: Family friendly policy? Managed immigration?...? ◆ Other Construction is lower because traffic infrastructure investment by the government, federal states and municipalities is low. Cure: More government investment?...?

14. © RAINER MAURER, Pforzheim - 14 - Prof. Dr. Rainer Maurer Are German wages too low?

15. © RAINER MAURER, Pforzheim - 15 - Prof. Dr. Rainer Maurer Digression: Are Germany's Trade Surpluses Unsustainable for Other Countries? ➤ Criticism