Pro: Current Account Surpluses

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Pro: Current Account Surpluses Analyzing the German Case Study

By: Priya, Lea, Logan, Annie, Shanice

Outline I. Definition II. A Theoretical Defense III. The German Case Study IV. The Counterargument V. The Defense

Current Account Surplus Definition: A positive difference between a nations level of savings and level of investment, indicating that the nation is a net lender to other countries around the world.

A Theoretical Defense • Current account surpluses are beneficial for a country’s economy because they result in higher employment rates. High levels of exports serve to increase employment rates because there are more jobs needed to fuel this export based economy. • Low import spending translates into higher consumer spending on domestic goods rather than on foreign goods.

The German Case Study • The German economy has shown remarkable strides in recent years. • Current Account Surplus of about $270 billion in 2013, accounts for over 7% of economic output (Reuters). • Unemployment rate below 5%

Graphical Depiction of Export Led Economies

German Unemployment Rate

The German Case Study Cont. • Germany is not the only one benefitting • “Imports, mainly from our European partners, account for 40 cents of every euro worth of German exports” (Triblive). • A majority of the German people appear to support the current economic surplus. • Poll found that 54% of German people approve of having a balanced budget rule which aims to avoid continuous deficits (Wall Street Journal).

The Counterargument • Critics argue that correcting Germany’s imbalance would be beneficial for the entire Eurozone. They say Germany would contribute more to global demand if it imported more, exported less, and in doing so reduced its current account surplus

The Response 1) Demand spillover from Germany to other troubled European economies will likely be less than many imagine 2) Any change to Germany’s export-led model would result in the destabilization of the German economy, decreasing the credibility of the Eurozone as a whole 3) Politically, punishing Germany for its Current Account Surplus would be counterproductive because EU policy makers are current encouraging Eurozone countries to become more competitive by running a Current Account Surplus themselves

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