Germany’s twin current account and trade surplus, coupled with underinvestment, and record-high savings continue to destabilize the Eurozone, according to a report published this week by the Munich-based Ifo think tank.

Biggest trade surplus in the world

Ifo’s findings concluded that Berlin’s €234bn trade surplus in 2017 dwarfed Japan’s €166bn.

Despite low unemployment of 3.6%, wage growth in Germany remains moderate, subduing inflation and preventing the rebalancing of the Eurozone’s economy via increased consumption.

European reactions

Pierre Moscovici, the European Commission’s head of Economic and Financial Affairs, has explicitly called on Berlin to address the imbalance, saying Pierre Moscovici, called on Berlin the German government needed to boost domestic consumption and said the size of its surplus is “unhealthy”.

Moscovici has made a case for fiscal stimulus for just under a year, insisting on a German demand-side stimulus that translates to pension and wage rises.

Germany announced in 2016 its most significant budget surplus in a generation. The surplus was the third consecutive record-breaking result for the German economy, a trend that is expected to continue for a fourth year in 2017.

What underpins Germany’s budget surplus is, of course, its trade surplus. But rather than increasing wages, pensions, and income, Germany is affecting corporate tax cuts to the tune of €11bn between 2015 and 2017.

Don’t touch my surplus

Speaking on the sideline of the International Monetary Fund meeting in Washington last April, Wolfgang Schäuble talked about a multi-speed Europe and “coalitions of the willing” that included France. Schäuble argued, however, that while political integration requires action, trade imbalances require patience.

The official German position appears to be that the German trade surplus is a force of nature that is beyond anyone’s political control. That is a problem for the Trump administration, the IMF, French President Emmanuel Macron, the OECD, and just about everyone outside the European Council of Ministers.

The argument put forward is that Germany’s trade surplus is not really under Berlin’s control. German products are “highly competitive” because they are good, the management of the Euro is “independent,” and exchange rates are set by “the invisible hand” of the market.

The projection is that the trade surplus will be reduced from 8.6% of the GDP in 2015 to 7% in 2018, but that projection is now being called into question.