Daily Archives: February 10, 2014

Who’s running the smarter economy: the UK or Germany?

Many economists would make the point that imports are a benefit and exports are a cost to any economy. If you take that argument to its ultimate conclusion then it would appear to make sense to issue as many treasury bonds as the market will accept to finance as many imports as possible. The bigger the trade gap the better! Of course, the wider the trade gap between exports and imports the more the government has to deficit spend to replenish the currency that the economy needs to function. The government budget deficit/surplus and balance of trade deficit/surplus are closely related as a quick check on wiki will show, and as explained on previous posts.

The Trade Balance (In its widest sense = Current account balance*)
http://en.wikipedia.org/wiki/List_of_countries_by_current_account_balance_as_a_percentage_of_GDP
The Budget Balance
http://en.wikipedia.org/wiki/Government_budget_balance

Germany has a budget surplus of 6.1% and a trade surplus of 7%
The UK has a budget deficit of 3.3% and  a trade deficit of 3.8%
(Incidentally it looks like the budget deficit should be slightly higher)

Of course the UK and Germany aren’t on the extreme ends of the scales as can be seen from the two lists. The United States has similar percentage figures to the UK . Their economy is structured as a net importer too.

Most economists perhaps wouldn’t  push the ‘imports are good’ argument too far, but neither would they say that a trade deficit of 3.8% of GDP was anything to worry about. Essentially the UK , and US,  act as  bankers for the Rest of the World and need to run  trade deficits to give the ROW the necessary ££, and $$ to buy government securities.

But what about Germany? Are the Germans being as smart as they think they are by running a large surplus?  They are working 7% harder than they need to be just to break even and 11% harder than the British!

They should learn to chill out more and enjoy life 🙂

* In economics, the current account is one of the two primary components of the balance of payments, the other being capital account. It is the sum of the balance of trade (i.e., net revenue on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers.

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