How bad is the new German trade deficit?

That is the topic of my latest Bloomberg column.  The country suddenly faces many problems at once:

…extremely high energy prices, the need to bail out some of its energy firms, the conflict in Ukraine and the resulting promise to boost defense spending, and possible troubles with Italy in the Eurozone over rising borrowing costs. Germany is either going to do very, very poorly, or will muddle through and manage a major turnaround. I would bet on the latter.

And here is another part of the argument:

And then there is what may be Germany’s biggest problem: complacency. In the last 20 years Germany’s primary education system has had a mixed performance, albeit with some improvements, and its infrastructure is no longer perceived as so efficient or high quality. Yet reform was not imperative, partly because things were going OK enough in Germany.

There is a chance that the current crisis will jolt Germany out of its passivity. Throughout history Germany has managed to reverse some very bad situations, as it did after the devastations of the Napoleonic wars and World War II.

Keep in mind that human capital is the most important determinant of national wealth, much more important than the flows reflected in the trade account in any given month or year. If German reforms boost the ability of the country to train students and to put its people to work, the long-run payoffs could be very high.

In general I have found that wealthy societies deal with “one-off” problems somewhat better than most observers expect in advance.  I will be watching closely.


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