Trump to the rescue

The Chinese aren’t the only ones Donald Trump picks on when it comes to international trade. He is also going after the Germans for their surplus. In an interview on 17 January for Bild, the widely read daily tabloid, he threatened to slap a 35 percent import tariff on German vehicles, Angela Merkel replied from Munich on February 18th that the overly weak Euro was the main reason for the surplus, putting the blame on the European Central Bank instead of her government. She says the culprit is the ECB’s loose monetary policy, in particular quantitative easing, which entails printing more money, and effectively drives the currency value down.

There is no denying that Donald Trump is right to take Germany and Europe to task here. According to the European Commission, last year the Euro Zone ran a 384 billion Euro current accounts surplus (sales and purchases of goods and services), which represents 3.6 percent of GDP. In real terms, without causing any financing issues, i.e. begging from the Qataris or the Chinese, we could have spent 384 billion Euro more last year because we had produced the corresponding wealth.

But, despite the unemployment dogging us, sky high poverty levels since the crisis, our lagging energy transition, we did not spend it because our hands were tied by our own policies. And Donald Trump has every right to point the finger: Europe’s behaviour is punishing not only its own population but also the world economy by depriving the latter of the right to produce goods for Europe. In this context in fact, it is totally abnormal for European monetary policy to continue to weaken the Euro.

Though she won’t admit it, Angela Merkel holds a good number of the keys to the problem. Given the current state of the European economy, the ECB can only tighten monetary policy if in parallel European countries loosen budgetary policy and adopt less deflationary labour policy. However, the German government is forcing its neighbours to do just the opposite. Now this is where Donald Trump can surely prevail where all Europeans have hitherto failed: in making German public opinion and leadership heed at long last the call of reason.