Germany’s Problematic Trade Surplus

Sharing a currency with less competitive countries has helped Germany in several ways.

First, it has facilitated access to European markets for German companies. (However, this has been less significant recently, as evidenced by a declining share of exports to eurozone countries.)

Second and more important, being locked into a currency union with troubled countries enables Germany to profit from a relatively weaker currency than if it were outside the eurozone.

Finally, the common currency disallows countries such as Italy and Spain to apply an independent monetary policy. Before the euro, these countries would manipulate their currencies to become more competitive.

As the low sovereign interest rates show, Germany is seen as a haven in Europe. If it had its own currency like Switzerland or Sweden, it would face the problem of shielding its export industry from the appreciating national currency.

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