Greece, Italy, Spain and Portugal, for example, run large current account deficits. Last year, these deficits summed to about €102bn, about half of which was due to trade within the eurozone. Germany, meanwhile, has a large current account surplus – last year it reached about €80bn – about half of which is also due to trade with its eurozone partners. For the past ten years, this relationship worked to everyone’s favour. Germany enjoyed export-led growth. Club Med countries provided much of the demand for those exports. But this symmetry is as true of the bust today as it was of the boom then.
Germany would not be able to substitute with increased exports to other countries. The economy, which is already stalled and only currently propped up by exports, would go into reverse. Berlin would then face some tough choices. One of them, as Lombard Street economist Brian Reading suggests, would be to sustain a substantial rise in its budget deficit to compensate for lost demand elsewhere. If only out of self interest, German opposition to a Greek bail-out plan is therefore likely to soften.