Sometimes, you just can’t win. If a country has a trade imbalance, paying for it is achieved by public borrowing, creating a debt mountain, but Germany finds itself mildly chastised by the EC for running a trade surplus!
Germany’s budget surplus last year came in at €24 billion, a post-unification high, fuelled by greater tax revenues and higher employment (and therefore partially reduced social security spending).
This has been achieved despite increased expenditure on housing and handling the integration of the flood of refugees that Germany has welcomed, more than a million over the past two years. Indeed, Federal law will force some of the surplus to be put into a fund for the benefit of refugees. Income outstripped expenditure in all areas of Federal, state and local government, including the social security budget, this has been put down to large hikes in income tax receipts, property tax revenue and fuller employment leading to higher tax and social security contributions from workers.
The German economy expanded by 1.9% last year, thanks mainly to buoyant consumer spending and government expenditure. The trade surplus is wort 0.8% of GDP or €23.7 billion. The Federal share of the increase, €7.7 billion, will be used to assist refugees (working out at about €7700 per refugee welcomed to Germany over the past two years).
Speaking of the surplus, Angela Merkel remarked “If you look at the federal level alone, the surplus is rather small.” She suggested that expenditure on defence, social improvements and domestic security would rise, but added: “At the same time, we don't want to take on new debt. So the room for manoeuvre is rather limited".
The EC suggested that trimming Germany’s surplus would help the Eurozone and that Germans should invest more in both the public and private sectors and concentrate less on savings. The Commission noted: "Further policy action should aim at further strengthening investment, including by reforming the services sector and improving the efficiency of the tax system, as well as stimulating labour market activity of second earners, low-income earners and older workers to boost households' incomes and counter the effects of ageing."