International Economics

By:
M.Saad Farooq
Economic Overview
Fifth Largest developed
Economy, part of the
European Union and has Euro
as its currency.
Key and Crucial Member of
the IMF
Currently, faces problems
such as sustained long term
growth, low fertility rates and
low levels of investment.
Trade Balance
Germany is known to have
maintained a great trade surplus in
the recent years as compared to
other developed economies.
This partly due to the huge
demand of Germanys high value
and high quality export goods such
as motor vehicle parts, chemical
products and electronic goods.
Other than that, Germany is a
major importer of oil and gas and
metal goods.
But What does it mean?
Trade surplus is usually good news for a country however in the case
of Germany, it might have some unusual implications.
Grossly undervalued currency leading to political tensions.
Experts have even called out to the ECB to tighten its monetary policy
as they are looking forward to the new US trade policy.
But What about the neighbours?
The Budget
Germanys budget suplus has hit a record high during 2017 to about
18 billion Euros.
Neighbours are critical of Germany's finances, saying it is hoarding
money when it should be spending on infrastructure and projects to
boost the eurozone economy.
. Economists from different institutions have urged German officials
to Spend the Savings.
But How?
Various ideas for spending have been discussed ranging from a
reduction of income tax to a huge investment in infrastructure and
education.
Trade economists have also recommended Germany to let wages rise
as devaluing the Euro is not an option since it does not control it.
However, even this idea has been met with criticism as some
economists claim that Germany has an ageing population which tends
to save for retirement.
Exchange rate regime
As for the exchange rate regime, Germany has adapted the Euro as its
currency which follows a free floating exchange rate regime.
The European union and the creation of the Euro came in 1957 at the
treaty of Rome.
In floating exchange rate systems, central banks buy or sell their local
currencies to adjust the exchange rate. E.g G7 banks.
This is used for stabilizing a volatile market or achieving a major
change in the rate.