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Paul Krugman already jumped on this New York Times piece, but the paper really deserves a thrashing for it. The story is that Germany’s economy had been driving the euro zone economy. It now appears on the edge of recession, having shrunk at a 0.4 percent annual rate in the second quarter. The article then asks whether the rest of the euro zone will now be able to support Germany’s economy and restore it to growth.
The problem with this story, as Paul points out, is that Germany has been running massive current account surpluses. This means that rather than being a source of demand for its trading partners, it has been a net drain of demand. The items that Italy, Spain, Greece and other euro zone countries import from Germany more than outweigh the demand created by their exports to Germany. The other euro zone countries have been effectively supporting demand in Germany rather than the other way around.
It’s also worth pointing out here that Germany directly made life worse for the other euro zone countries by using its power in the European Union to force austerity on them when they should have been running large deficits to boost their economies. That continues to be the case today, which is why there are negative interest rates on the long-term debt of Germany and several other euro zone countries.
There is a small point in the piece’s favor, Germany’s current account surplus has been falling somewhat in the last four years. It peaked at 8.9 percent of GDP in 2015 and is projected to be 7.1 percent of GDP in 2019. This drop in the trade surplus would be providing a boost to Germany’s trading partners, but it is a relatively new development. The rapid increase in Germany’s current account surplus in the years from 2009 to 2015 was a serious impediment to recovery in the euro zone.
As a side bar, it worth mentioning that this piece reports the growth rate of Germany and other countries mentioned in the piece at quarterly rates. While it is standard practice in Europe to report quarterly growth figures at quarterly rates, it is never done in the United States where they are always reported at annual rates. Since the point of a news article is to convey information to readers, it would be helpful if the paper would convert the quarterly growth rates into annual rates.
This is a very simple process. For low growth rates like those discussed in this piece, multiplying by four will usually be adequate for converting a quarterly growth rate into an annual rate. To be more precise, it is only necessary to take the growth rate to the fourth power. Presumably the NYT has people capable of doing this calculation.
This column first appeared on Dean Baker’s Beat the Press blog.