![\"Bibow_Levy](\"http:\/\/blogs.bard.edu\/multiplier-effect\/files\/2013\/06\/Bibow_Levy-Blog_Current-Account-1.jpg\")
<\/a><\/p>\nBack in the 2000s, the euro appreciated very strongly against the U.S. dollar (as well as in real effective terms) between 2002 and the summer of 2008. Euro appreciation cut Germany off from benefiting even more from the record global boom of the 2000s. However, somehow Germany, then also known as the \u201csick man of the euro,\u201d managed to run up gigantic regional current account surpluses, both vis-\u00e0-vis its euro partners and vis-\u00e0-vis the larger European Union (of 27 member states). At its pre-global crisis peak Europe was the primary source of Germany\u2019s current account surpluses. Don\u2019t miss then what a remarkable re-loading and re-sourcing of German external surpluses has occurred since then.<\/p>\n
Being so conspicuously export-dependent for its growth, Germany got badly hit by the global crisis of 2008-9. The German economy shrunk a whopping five percent in 2009. But Germany then enjoyed a stunning recovery in 2010-11. This partly owed to a surprising, very unGerman \u201cKeynes moment\u201d in German policymaking, a sizeable German fiscal stimulus. But it owed even more to the stimulus packages put in place by China and the U.S., which have recharged Germany\u2019s export engine, and did so despite the ongoing Euroland crisis. So here is the remarkable re-loading and re-sourcing of Germany\u2019s external surplus: surpluses vis-\u00e0-vis Euroland and the EU at large are sharply down, but the regional crunch was more than offset by surging extra-regional surpluses. So Germany got lucky once again, and no doubt this also owes to the weaker euro, conveniently depressed by the Euroland crisis.<\/p>\n Recall here that Germany\u2019s main economic motivation for the euro was to prevent deutschmark strength from undermining Germany\u2019s competitiveness within the region. Ballooning regional surpluses suggest that the euro paid off handsomely in this regard, it would seem. Today, by contrast, euro payoff takes the form of boosting Germany\u2019s extra-regional competitiveness. Not so bad either, it would seem.<\/p>\n There is just one catch here. As one probably would not have guessed from the devastating and highly counterproductive policy prescriptions Germany has handed out to its crisis-stricken euro partners, Germany is actually highly vulnerable to crisis developments in Euroland. While still enjoying \u201chaven status\u201d as the markets remain anesthetized by Mr. Draghi\u2019s big bluff, Germany has built up huge financial exposures to its euro partner countries \u2013 which are subject to loss, especially in case of euro breakup. In case of euro breakup Germany would also lose its global protection shield that is currently keeping the world champion in current account surplus production \u00fcber-competitive, as a new deutschmark would likely be welcomed by an abrupt appreciation that would see the German economy crater as a result.<\/p>\n Germany\u2019s vulnerability to the Euroland crisis is investigated in more detail in a new Levy Economics Institute working paper (no. 767) that has just been\u00a0published here<\/a>.<\/em><\/p>\n<\/a><\/p>\n