A few days ago I pinged global trade expert Michael Pettis with my post Germany’s Finance Minister Blames ECB For German Trade Surplus; Why the Eurozone Will Destruct.

His reply was interesting but not at all unexpected. Pettis labeled Wolfgang Schaeuble’s comments “utter lunacy”.

Schaeuble Recap

Germany has no plans to reduce its export surplus, Finance Minister Wolfgang Schaeuble said on Friday, as the European Central Bank (ECB) has not changed its monetary policy which has led to a weaker euro which in turn boosts German exports.

“Even before the European Central Bank decided its policies of unusual monetary policy, which also led to the euro exchange rate falling significantly, I said that we will increase German export surplus,” Schaueble told reporters.

When asked whether he had any plans to decrease Germany’s export surplus, Schaeuble said: “I haven’t heard that the ECB is changing its monetary policy.”

Pettis Comments

What utter lunacy. It is one thing to defend the existing surplus by pretending to believe that it was not caused by income distortions at home but rather by foreign laziness, but to say that it is German policy to grow the surplus further is outrageous. Now that they have bankrupted Europe, and developing countries are in trouble, who but the US can possibly be forced into absorbing it?

If the US were ever to decide that it cannot continuing absorbing everyone else’s deficient demand at the expense of becoming more like peripheral Europe, the consequences for Germany (and China and Japan) would be devastating.

Michael

Bankrupt Europe

Some people blame Spain, Italy, Greece and Portugal for self-imposed problems. It’s not all that simple. The Euro and German policies were both managed in a manner guaranteed to create a crisis in peripheral Europe.

Spain did not have a choice in interest rates. Nor did Italy, Portugal or Greece. Fundamental flaws in the Euro exacerbated huge productivity differences.