Charles Dumas, a director and head of the world service at Lombard Street Research, is firmly in the camp that blames “savings gluttons”. In Sick men shackled: Germany, Italy & the euro, he writes that “deficit country borrowing that led to mortgage debt excesses was in response to structural surpluses and export fixation in surplus countries.”
He argues that countries with high savings rates were “natural losers in a world of deficient demand, since their lack of domestic demand is structural, and can only be remedied by deficit budgeting that they have eschewed”.
In the opposing corner, Friedrich Heinemann, the head of corporate taxation and public finance at the Centre for European Economic Research in Mannheim, Germany says: “The theory that the saver is the enemy of growth is incomplete. Only through accumulating savings, countries can finance investments and grow on a sustainable basis.”
Heinemann points to Asian countries that “could only grow because they saved and accumulated capital to finance their investment”. He argues that since those countries now have a surplus, they are in a better position to cope with the consequences of the economic crisis and to finance their economic stimulus packages.
Heinemann agrees that an economic imbalance caused the current crisis. However, he says, it was America’s “years of massive capital imports” that is to blame.
“US households didn’t save, but consumed the capital other countries saved. Countries like China and Germany accumulated a surplus while the USA accrued a huge [“untragbares”] deficit it could not afford.”
Dumas says, “Savings gluttons will be sapped by the collapse of world trade into substantially worse recessions than the deficit countries.” He says these countries will recover only as the Anglo-Saxon economies recover. They will recover first and suffer less severe recessions.
However, Heinemann says countries like Germany are in a better position, as individuals and government alike have got a propensity to save rather than to encumber themselves with debts.
While Dumas has previously argued that Germany’s economic stimulus package was not large or fast enough, Heinemann argues that “the government doesn’t need a bailout plan as massive as America’s.
“Germany’s economy has built-in stabilisers such as a more extensive social system. Germans have accumulated savings.
“Germany has run a solid budgetary policy. In 2008, we saw almost a balanced budget.”
Heinemann says the German economic stimulus package will burden the budget with a 5% deficit. In contrast, he predicts America’s bailout plan will increase the government’s deficit from 4% in 2008 to 13% in 2009.
“The obsession with a balanced budget is purely destructive,” says Dumas. “Germany could and should run its deficit up by an immediate three to five percentage points of GDP on a ‘discretionary’ basis. German excess saving is contributing to conditions that will ensure both falling income – from reduced terms of trade – and negligible to negative real total return on capital.”
In 2007, household saving rates in the eurozone were 13.9 percentage points higher than the average in America (5.2%), despite a lower income, according to a recent report by Eurostat, the statistical office of the European communities.
The highest savings rates were recorded in Switzerland (17.1%), Germany (16.7%), Slovenia (16.4%), Austria (16.3%) and France (15.6%). The lowest saving rates were recorded in the Baltic countries and Britain (2.2%).