Home > EMU Crisis, Germany, Global Imbalances > Small Germany?
  1. PierGiorgio Gawronski
    December 7, 2013 at 1:05 pm

    Your calculations of the impact of a German rebalancing on other EU members are way too small. A demand push would act mostly – not just 50% – through increased German imports, because there is still an output gap in Germany to be filled before prices rise: an income effect, not a substitution effect. But even if you assume that a demand push causes inflation in Germany – you get rebalancing through a substitution effect, so you get your 50% result: half rebalancing only materializes through higher German imports -, lowering German competitiveness and exports would cause import substitution and a domestic demand push elsewhere – in Italy Spain etc.
    Then there are multiplier and spillover effects in europe.
    Then there is an improvement of peripherical EU countries in world markets – for a given ECB monetary policy.
    Finally, there would be an improvement in fiscal deficits in the south of europe that would reduce the need for austerity.
    The impact of a German rebalancing on the GDP of Italy would be in the order of 2% (back of the envelope calculataions).

  1. December 16, 2013 at 6:49 pm

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