Weekly Review

Wolfgang in the Lions' Den

Eurogroup to approve the recue plan for Greece
Source: Picture alliance/Wiktor Dabkowski

Spare a thought today for Wolfgang Schäuble, Germany’s finance minister, who will be at an IMF meeting in Washington once again, looking up from his wheelchair at the foreign colleagues surrounding him. As so often in recent years he will try, in his Swabian-accented English, to defend Germany’s current-account surplus, which is the largest in the world and said to be a major cause of global economic imbalances.

Both the surplus as a problem and Mr. Schäuble as a person are complex, not simple. Start with Mr. Schäuble. Aged 74 and a member of the Bundestag for four decades, he has witnessed the unfolding of post-war German history like few others: as the right-hand man to Chancellor Helmut Kohl in the 1980s, as the interior minister who signed the treaty that sealed reunification in 1990, as the orator who persuaded the nation to move its capital from Bonn to Berlin, and more.

But Mr. Schäuble also embodies personal and political tragedy. Barely a week after reunification, a madman shot three bullets into him at a campaign event. He has been in a wheelchair ever since, and has talked about what that’s like in a characteristically and disarmingly frank way.

His other great tragedy involves a former and current chancellor. Mr. Schäuble was once considered Mr. Kohl’s heir apparent, but the two men fell out during a party-finance scandal. A woman who worked for Mr. Schäuble, named Angela Merkel, then ousted him as party chairman, and later went on to occupy the chancellery. Mr. Schäuble has now been her finance minister for seven years.

So this is the man now entering the lions’ den in Washington. On the several occasions I have met him, I have found him to be a more soulful interlocutor than the average politician. He can be by turns funny and mercurial. But above all I always got the impression that he is beyond fear. For what could he possibly have left to be afraid of? That should help him today in Washington.

These IMF meetings have become ordeals for Germans, for they are venues where right-thinking (and usually Anglophone) economists nowadays lecture the Germans about basic economics, including the evils of Germany’s aforementioned surplus. Mr. Schäuble, a lawyer by training, seems an easy target. But this time he comes prepared with a dossier.

The easiest charges for him to refute are the outlandish statements recently made by the Trump administration, suggesting that Germany manipulates the euro to benefit its exporters. In fact, Germany has no influence over monetary policy, which is made by the European Central Bank. If it did have a say, it would have tightened policy long ago, making the euro stronger. So this entire line of reasoning is just silly.

But there is a deeper faultline. It increasingly divides Anglo-American economists, who are nowadays once again largely Keynesian, from the German mainstream, which is still influenced by its own tradition of Ordoliberalism (think Hayek and “Austrian” economics, but less extreme). The Anglo-Americans will point out, correctly, that current-account surpluses come about when a country saves more than it invests. These excess savings, not being invested at home, must logically end up abroad, where foreigners in turn use them to buy German imports. To the Anglo-Americans the solution is simple: You, the Germans, must dramatically increase investment to save the economies of Europe and the world.

Actually, it’s more complicated, as Christopher Cermak, one of our editors, explains in his essential primer on the subject. To make it short, you shouldn’t blame German policy or Mr. Schäuble for the surpluses but something over which he has little influence: demography. Germans are saving so much because they are collectively aging and need piggy banks for retirement soon. And German firms are not investing enough at home because they are expecting lower returns from the smaller German population in future. There are many other factors, but this is the paramount one.

So no matter how much the world’s ministers and economists wag their fingers at Mr. Schäuble today, Germany’s surpluses are here to stay for a while. That’s the bad news. The good news is that Germans will eventually start retiring en masse. And then they will draw down their piggy banks, turning their country’s surplus into deficit. Who knows? Perhaps even Mr. Schäuble will retire one of these days – purely for the sake of America’s export sector, it goes without saying.

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