Understanding German fiscal policy
It is a common view that governments should run a deficit in bad times, and a surplus or balanced budget — if at all possible — in good times.
I have news for the people: according to the German view of the world, these are the good times. Thus they want to run a surplus. I don't see that perspective being rebutted.
The Germans see themselves as having made the necessary wage adjustments, in advance, and in a manner that Keynesian economics is skeptical of. The Germans also see themselves as having produced and maintained true credibility about future fiscal policy (how many other countries can claim that?) by a constitutional amendment, a lot of tough talk, and a relatively robust real economy. German bonds are a safe haven investment, even though Germany's numbers, such as the debt-gdp ratio, are not overwhelmingly wonderful. That's a testament to German public sector management.
Did I mention that — after unification — the Germans tried (against their will, they had to) more than a decade of massive fiscal stimulus, and subsidization of consumption, starting with well under full employment, and yet with mediocre results? That wasn't long ago.
And yet somehow it is a mystery, or a strange annal in some long book of Dogmengeschichte, that the Germans are not more interested in Keynesian economics.
It is incorrect to argue that: "their high-savings export-oriented economy only works if someone else runs a high-debt economy and buys their stuff." The Germans do just fine when they trade with current account surplus countries. If Portugal and Greece were more like Norway or the Netherlands, the German trade surplus might well go down, but the total value of German exports likely would go up (Germany exports mainly "normal goods") and the German economy would do just fine.
The Germans are well aware that most of their neighbors have not managed their finances nearly as well as they have. How should we expect them to respond, if we, and others, now tell them that, after all their careful management, it is now time to run up debt to spend more money in their neighbors' shops? (And that is in addition to significant ongoing EU transfers from Germany to poorer countries.) How would we respond to such a request? Do we blame our own successful export sectors — such as aircraft and movies — for the troubles of the world economy? Does Obama lecture Boeing and Hollywood for creating problems?
How do we speak to the much poorer Chinese? Do we offer them aid or do we make demands on them? In this matter, the Germans to me seem more reasonable than the United States.
The not-too-often-stated-but-often-thought German attitude is that if other nations are going to share in beneficial German and European institutions, some of them need a bit more discipline. If they don't have that discipline, they need to step back until they do. Is Germany doing either itself or the broader world a favor by lowering its policies and standards to meet the requirements of the less successful nations?
Here is my previous post on a related topic.