Political Economy is a column about the intersection of economics, finance and politics across Europe.
PARIS — Donald Trump may prove to be the catalyst for change the eurozone has long been looking for.
The protectionist U.S. president is forcing Europeans to face the unsettling problem of their massive current account surplus, which has been the best indicator of everything that’s wrong in the monetary union in the last five years.
Forget Trump’s own economic analysis or lack thereof, and forget the attention-grabbing headlines on coming trade wars that may or may not happen. The U.S. president’s attacks on German exports — his Exhibit A that the Europeans aren’t playing a fair trade game — have helped throw a harsh light on the eurozone’s No. 1 problem.
Far from being a sign of economic well-being, the eurozone’s surplus — $380 billion last year or about 3 percent of the region’s gross domestic product — reflects the monetary union’s deep structural flaws, worsened by the way it addressed its long crisis.
It’s the result of internal imbalances compounded by the bad policies implemented during the crisis, and of the EU’s so-called rules being poorly enforced, if at all.
Most damaging for other countries, it can also be seen as “a way for Europe to export its problems to the rest of the world,” according to one central banker.
At their last summit in Brussels last month, EU leaders talked disjointedly about the protectionist menace from the U.S. and about their longstanding plans for eurozone reform. But they should have devoted one session to both problems, which are linked.
Europe’s current accounts — which include both the trade of goods and of services — have shown a rising surplus since 2012, after years of being roughly balanced. The surplus rose to 1.5 percent of GDP that year, then climbed every year to reach nearly 4 percent in 2016.
At $380 billion, it’s now much larger than China’s $200 billion surplus (about 1.7 percent of that country’s GDP, according to data from the International Monetary Fund). And looking ahead, the situation will get worse. According to IMF forecasts, China’s current accounts will be roughly balanced in 2022, whereas the eurozone’s surplus will hardly have shrunk by then.
The eurozone surplus doesn’t reflect the strength of the German industrial machine or the supposed virtue of its policies — fiscal or otherwise. It is mostly the result of the eurozone’s structural imbalances.
For a monetary union’s economy to be balanced, it has to take into account the differences between its respective nations’ different political, economic, and social systems. What happened instead when the euro crisis took everyone by surprise in 2009 was that each member country was told to become more like Germany.
But for the system to work, if everyone must become like Germany, then Germany must also become a little bit less German. Surprise — this is not what happened.
Countries in trouble were told to cut costs, boost competitiveness and implement austerity policies. It worked: Imports fell and exports rose.
Spain and Italy are now showing significant surpluses. In each of these countries, the balance has improved (from deficit to surplus) by roughly $100 billion since 2009 — the same as Germany’s accounts, which went from a $200 billion to $300 billion surplus.
Germany, though, didn’t change the course of its economic policy and didn’t feel any pressure to do so as the European Commission, which has the means to clamp down on “excessive imbalances,” looked the other way.
According to European rules that are even less enforced than the more talked-about ones on fiscal deficits, a member country cannot run a surplus higher than 6 percent of its GDP. Germany’s surplus amounted to 8 percent of GDP last year, while the Netherlands’ was 8.5 percent.
As long as the narrative of the eurozone crisis keeps making a surplus the moralistic sign of economic virtue, Europeans are unlikely to dare to take steps to tackle a problem that is now the world’s.
Here’s hoping that the brutality of Trump’s attack on free trade will force them to spring into action.
Pierre Briançon is chief European economics correspondent for POLITICO.
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