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Abstract
Germany has had large external surpluses over the past decade, while the public debt level has remained high. Large current account surpluses can be attributed to a confluence of factors, including a cyclical surge in global demand for exports and modest domestic wage growth that has helped strengthen competitiveness. An improvement in the private saving–investment balance has been driven by a decline in investment following the reunification boom and higher precautionary saving. High public debt can be traced in a fundamental sense to reunification efforts and policy measures in response to the financial crisis. Structural policies—including tax and financial sector reforms—could help boost growth and reduce external surpluses. Fiscal space needs to be rebuilt, but the pace of consolidation can be measured.
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