Sumner doesn't buy that Germany has been benefiting from Greece weakening the euro.
"I'm seeing a lot of people claiming that Germany benefits from the euro's impact on its trade balance. The argument seems to be that the euro is weaker than the Deutschmark would be, and that this explains Germany's big trade surpluses. At the risk of sounding like a broken record, this is reasoning from a price change."
"It would be more accurate to say the trade surplus causes the exchange rate. The current account (CA) surplus is equal to domestic saving minus domestic investment. And these two variables reflect deep fundamental factors in the German economy. Like other northern European countries, Germany saves much more than it invests. But this has nothing to do with whether a country is in the euro or not."
"1. What if the government "artificially" pegs the exchange rate?"
"That makes no difference; the price level will adjust until the real exchange rate returns to its long run equilibrium. This happened in Germany after 2005, when the actual euro exchange rate was too high and Germany had 11% unemployment. Then the German price level then fell relative to other countries. The only way a government can control the real exchange rate in the long run is by affecting saving or investment. (Norway's high government saving might help explain their large CA surplus, but it's not clear the public of that rich country wouldn't have saved almost as much.)
"2. OK, but what about the short run, before the price level adjusts? Surely a weaker currency temporarily boosts the trade surplus? Not necessarily, as there are both the income and substitution effects to consider. In April 1933, the US devalued the dollar and the trade balance worsened for the remainder of the year, as fast growth in the US sucked in imports."
http://econlog.econlib.org/archives/2015/07/weak_currencies.html
Here, Bernanke certainly seems to directly contradict him:
"The risks for the European project posed by these economic developments are real, no matter what the reasons for them may be. In fact, the reasons are not so difficult to identify. The slow recovery from the crisis of the euro zone as a whole is the result, among other factors, of (1) political resistance that delayed by many years the implementation of sufficiently aggressive monetary policies by the European Central Bank; (2) excessively tight fiscal policies, especially in countries like Germany that have some amount of "fiscal space" and thus no immediate need to tighten their belts; and (3) delays in taking the necessary steps, analogous to the banking "stress tests" in the United States in the spring of 2009, to restore confidence in the banking system. I would not, by the way, put "structural rigidities" very high on this list. Structural reforms are important for long-run growth, but cost-saving measures are less relevant when many workers are already idle; moreover, structural problems have existed in Europe for a long time and so can't explain recent declines in performance."
"What about the strength of the German economy (and a few others) relative to the rest of the euro zone, as illustrated by Figure 2? As I discussed in an earlier post, Germany has benefited from having a currency, the euro, with an international value that is significantly weaker than a hypothetical German-only currency would be. Germany's membership in the euro area has thus proved a major boost to German exports, relative to what they would be with an independent currency."
"Nobody is suggesting that the well-known efficiency and quality of German production are anything other than good things, or that German firms should not strive to compete in export markets. What is a problem, however, is that Germany has effectively chosen to rely on foreign rather than domestic demand to ensure full employment at home, as shown in its extraordinarily large and persistent trade surplus, currently almost 7.5 percent of the country's GDP. Within a fixed-exchange-rate system like the euro currency area, such persistent imbalances are unhealthy, reducing demand and growth in trading partners and generating potentially destabilizing financial flows.3 Importantly, Germany's large trade surplus puts all the burden of adjustment on countries with trade deficits, who must undergo painful deflation of wages and other costs to become more competitive. Germany could help restore balance within the euro zone and raise the currency area's overall pace of growth by increasing spending at home, through measures like increasing investment in infrastructure, pushing for wage increases for German workers (to raise domestic consumption), and engaging in structural reforms to encourage more domestic demand. Such measures would entail little or no short-run sacrifice for Germans, and they would serve the country's longer-term interests by reducing the risks of eventual euro breakup."
http://www.brookings.edu/blogs/ben-bernanke/posts/2015/07/17-greece-and-europe
I have shown the quote to Sumner himself.
http://www.themoneyillusion.com/?p=29949&cpage=1#comment-395154
We;ll see if he has a response. I note that Bernanke also throws cold, freezing water on Morgan Warstler's 'structural reforms' hobby horse. Speaking to him on Twitter he seems to think that structural reforms are the real problem Greece faces and that the problem could go away tomorrow if Greece just does all the structural reforms demanded of them.
So I have a choice between Sumner, Morgan Warstler, and Bernanke... Hmmm....
"I'm seeing a lot of people claiming that Germany benefits from the euro's impact on its trade balance. The argument seems to be that the euro is weaker than the Deutschmark would be, and that this explains Germany's big trade surpluses. At the risk of sounding like a broken record, this is reasoning from a price change."
"It would be more accurate to say the trade surplus causes the exchange rate. The current account (CA) surplus is equal to domestic saving minus domestic investment. And these two variables reflect deep fundamental factors in the German economy. Like other northern European countries, Germany saves much more than it invests. But this has nothing to do with whether a country is in the euro or not."
"1. What if the government "artificially" pegs the exchange rate?"
"That makes no difference; the price level will adjust until the real exchange rate returns to its long run equilibrium. This happened in Germany after 2005, when the actual euro exchange rate was too high and Germany had 11% unemployment. Then the German price level then fell relative to other countries. The only way a government can control the real exchange rate in the long run is by affecting saving or investment. (Norway's high government saving might help explain their large CA surplus, but it's not clear the public of that rich country wouldn't have saved almost as much.)
"2. OK, but what about the short run, before the price level adjusts? Surely a weaker currency temporarily boosts the trade surplus? Not necessarily, as there are both the income and substitution effects to consider. In April 1933, the US devalued the dollar and the trade balance worsened for the remainder of the year, as fast growth in the US sucked in imports."
http://econlog.econlib.org/archives/2015/07/weak_currencies.html
Here, Bernanke certainly seems to directly contradict him:
"The risks for the European project posed by these economic developments are real, no matter what the reasons for them may be. In fact, the reasons are not so difficult to identify. The slow recovery from the crisis of the euro zone as a whole is the result, among other factors, of (1) political resistance that delayed by many years the implementation of sufficiently aggressive monetary policies by the European Central Bank; (2) excessively tight fiscal policies, especially in countries like Germany that have some amount of "fiscal space" and thus no immediate need to tighten their belts; and (3) delays in taking the necessary steps, analogous to the banking "stress tests" in the United States in the spring of 2009, to restore confidence in the banking system. I would not, by the way, put "structural rigidities" very high on this list. Structural reforms are important for long-run growth, but cost-saving measures are less relevant when many workers are already idle; moreover, structural problems have existed in Europe for a long time and so can't explain recent declines in performance."
"What about the strength of the German economy (and a few others) relative to the rest of the euro zone, as illustrated by Figure 2? As I discussed in an earlier post, Germany has benefited from having a currency, the euro, with an international value that is significantly weaker than a hypothetical German-only currency would be. Germany's membership in the euro area has thus proved a major boost to German exports, relative to what they would be with an independent currency."
"Nobody is suggesting that the well-known efficiency and quality of German production are anything other than good things, or that German firms should not strive to compete in export markets. What is a problem, however, is that Germany has effectively chosen to rely on foreign rather than domestic demand to ensure full employment at home, as shown in its extraordinarily large and persistent trade surplus, currently almost 7.5 percent of the country's GDP. Within a fixed-exchange-rate system like the euro currency area, such persistent imbalances are unhealthy, reducing demand and growth in trading partners and generating potentially destabilizing financial flows.3 Importantly, Germany's large trade surplus puts all the burden of adjustment on countries with trade deficits, who must undergo painful deflation of wages and other costs to become more competitive. Germany could help restore balance within the euro zone and raise the currency area's overall pace of growth by increasing spending at home, through measures like increasing investment in infrastructure, pushing for wage increases for German workers (to raise domestic consumption), and engaging in structural reforms to encourage more domestic demand. Such measures would entail little or no short-run sacrifice for Germans, and they would serve the country's longer-term interests by reducing the risks of eventual euro breakup."
http://www.brookings.edu/blogs/ben-bernanke/posts/2015/07/17-greece-and-europe
I have shown the quote to Sumner himself.
http://www.themoneyillusion.com/?p=29949&cpage=1#comment-395154
We;ll see if he has a response. I note that Bernanke also throws cold, freezing water on Morgan Warstler's 'structural reforms' hobby horse. Speaking to him on Twitter he seems to think that structural reforms are the real problem Greece faces and that the problem could go away tomorrow if Greece just does all the structural reforms demanded of them.
So I have a choice between Sumner, Morgan Warstler, and Bernanke... Hmmm....
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