On this side of the Atlantic, the solution to the financial crisis in Greece seems obvious. Greeks must reduce their wages and export more. But that easy remedy overlooks a big obstacle.
For Greece to export more, someone else must import more. The problem? There is a distinct lack of candidates for the job. China wants to increase its exports, not imports. Much the same goes for Brazil, India and Russia. The U.S., Britain, Spain, Ireland and Portugal are in the middle of their own financial woes. France already has a substantial trade deficit.
So that brings us to Germany, a country that prides itself on its financial rectitude and hefty trade surplus. At the moment, both factors combine to push down German demand for goods — but without increased demand from the eurozone’s wealthiest country, it’s difficult to see how Greece, as well as Spain and Portugal, can export enough to dig themselves out of their holes.
To make matters even worse, Germany is demanding that other eurozone countries reduce their budget deficits. Unless balanced by a huge wave of private-sector borrowing, balanced budgets would mean the destruction of even more appetite for imports.
“Germany is in a trap of its own devising,” writes Martin Wolf of the Financial Times of London. “It wants its neighbours to be as like itself as possible. They cannot be, because its deficient domestic demand cannot be universalized … Ironically, Germany must become less German if the eurozone is to become more so.”
Freelance business journalist Ian McGugan blogs for the Financial Post.