When Stephen King, chief economist of HSBC, checked each of his team’s local country forecasts this year he had a problem: most of them thought their economy was going to export its way to growth.

“Almost every country in the world’s looking towards export-led growth,” he said. “But of course we can’t achieve that unless we export to Mars or Jupiter.”

Closely linked was this week’s surprisingly sharp criticism of German economic policy by the US Treasury. “Germany’s anaemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro-area countries have been under severe pressure,” it wrote. “The net result has been a deflationary bias for the euro area, as well as for the world economy.”

The US, which noted Germany’s current account surplus is bigger than China’s, is concerned that Germans are not buying enough from foreigners (particularly Americans).

But why lay into Germany so publicly now? One answer is that austerity in the eurozone periphery has eliminated the current account deficits of the weaker countries, as falling living standards led to a collapse of imports. The rebalancing forced on deficit countries in the single currency zone was not mirrored by surplus countries, so the region as a whole moved from a balanced current account to a surplus of 2.3 per cent this year. The eurozone has become a parasite on the rest of the world.

Germany dismisses the allegations. Consumption is increasing, it points out, along with real wages. Indeed, the Bundesbank has been growing concerned that apartment prices are looking frothy in its biggest cities.

The US-German spat is just the latest round in the currency wars, which arguably trace their roots to the 1971 rejection by West Germany of US pressure to revalue the Deutschmark. Rather than help the US run an ultra-loose fiscal policy to fund the Vietnam war, Germany pulled out of Bretton Woods, the last remnant of the gold standard. The system duly collapsed that year as the dollar lost global credibility.

After 18 months of calm, currency wars are breaking out all over. China has begun manipulating the renminbi again, recycling capital inflows into dollars and euros to stop a rising currency hurting its exporters. After the US Federal Reserve surprised traders by maintaining its $85bn a month of bond purchases in September, prompting the dollar to plunge, other countries are growing fearful. As Neil Mellor, currency strategist at Bank of New York Mellon points out, South Korea, Australia and New Zealand have been talking down their exchange rates in the past fortnight.

Behind it all is weak global growth. Even with the aid of a current account surplus the eurozone has only just struggled out of recession. This week it reported inflation of just 0.7 per cent, enough to prompt a rethink by investors who had become overly bullish on the power of exports to hold up the currency. The euro fell 2.5 per cent, the worst weekly performance since early July last year, when the single currency was alone and unloved.

The rights and wrongs of the currency wars have long been debated. There is no doubt slow domestic demand in Germany has made it harder for the rest of the eurozone to fix its problems. Equally, replacing the Deutschmark with the euro has given Germany an undervalued currency, setting up the country to export more this year than the US. According to International Monetary Fund data, post-Bretton Woods Germany has never had a weaker currency when adjusted for price inflation; based on wages its real exchange rate is a fifth weaker since 1995 and 10 per cent weaker than when the euro launched in 1999.

Germany itself should want to reduce its near-record 7 per cent current account surplus. The crisis demonstrated it is hopeless at investing its export gains overseas, showing it up as one of the biggest losers from US subprime, and heavily exposed to the eurozone periphery.

Still, Germany is showing some signs of rebalancing. German inflation has been higher than the eurozone average for six months, the longest period of the euro-era other than at the end of the 2007 boom. A major point in coalition talks under way in Berlin is the introduction of a minimum wage, which should help pay rise further. Consumption remains weak, but is rising and is expected to drive growth next year, when the current account is forecast to shrink.

For investors, what matters is not the morality, where both sides think they are in the right, so much as the winner of this fight to have the weakest currency.

The US dollar has been rising recently (see chart), but only after reaching the lowest level in real terms since Bretton Woods ended. It remains about in line with previous lows reached in 1978, 1995 and 2008. Ignore the rhetoric. For now at least the US is winning the currency wars.

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