Empirical and Thematic Perspectives
Germany’s “Windfall” from Euro-Area Membership and European
In an essay published last week, we argued that European monetary union, coupled
with Germany’s extraordinary wage restraint, has resulted in a real effective exchange
rate for Germany that is now 15 to 20 percent lower than what would have prevailed if
Germany had its own floating currency. We further argued that this weaker real
exchange rate is providing a significant windfall for Germany’s export sector.
In this essay, we examine German trade performance since the introduction of the euro
in more detail. We show that Germany’s external surpluses have widened significantly,
led by rapid export growth. With the evolution of the euro keeping trade for the euro
area as a whole near balance, the counterpart to Germany’s rising surplus has been
mounting deficits in the peripheral countries, where the growth of wages has
significantly outpaced that of productivity.
See also the McKinsey study
Antony Mueller: "What's behind the euro crisis and how will it end?"