"Business model Germany" and current account imbalances in the EU

During the last decades, current account imbalances increased all over the world. In this context, countries with current account surpluses, in the European Union especially Germany, are increasingly blamed for their modest wage policies, which are seen as the main reason for global imbalances. On the basis of a panel data model, the present paper indentifies the determinants of current account imbalances of EU Member States. As the results show, price competitiveness is, although significant, only one out of many explanatory variables. Instead, current account imbalances are substantially caused by divergent propensities to save. This does not only relate to public, but also to private savings. Accordingly, demands addressed to Germany and other countries for higher wage agreements alone would be unrewarding. Instead, domestic demand in surplus countries should be increased by other means. On the other hand, in countries with current account deficits, existing savings potentials should be adequately exploited. © 2010, List-Gesellschaft e.V.