The result is that Germany is doing little to provide any offsetting stimulus to the depression in the periphery, making life in southern Europe even more difficult. Less than a third of Germany’s surplus is now with the euro zone, compared with over three-fifths before the financial crisis. This is partly because German exports to countries outside the euro zone have risen strongly. But it also reflects the impact of Europe’s economic slump: German exports to the zone’s depressed periphery have shrunk by more than the periphery’s exports to Germany have risen.

German policy makers argue that stronger demand in Germany would be of little benefit to the currency union’s peripheral economies. After all, Spain’s exports to Germany only constitute 4 percent of Spanish G.D.P. This argument misunderstands how rising wages and inflation in Germany could help the currency bloc to recover. After almost 15 years of wage restraint, Germany’s labor costs have fallen by 16 percent compared with its euro zone partners. As a result, German goods are artificially cheap, crowding out its partners’ goods from both euro zone and world markets. If German labor costs rose, Spanish, Italian and French manufacturers would be able to retake market share. Their exports to euro zone economies and to the rest of the world would rise more rapidly, and the risk of deflation would diminish.

To pull off what Germany did in the run-up to the financial crisis — cut costs relative to the rest of the currency union and rely on exports to offset the weakness of domestic demand, but without suffering deflation — the peripheral euro zone economies need much stronger German domestic demand. After all, that is how Germany was able to do it: Demand was strong (and inflation robust) elsewhere in the euro zone. If Germany is to help stabilize the euro zone economy, demand must rise strongly relative to supply in the German economy (that is to say the external surplus must shrink). If it does not, the periphery will only be able to recoup competitiveness through falling wages and prices.

Deflation in the euro zone periphery should not be welcomed as an adjustment in relative prices and hence in competitiveness. Deflation is making debts unmanageable. It pushes up real interest rates (further depressing economic activity), and can undermine the effectiveness of monetary policy. Moreover, the lower the inflation rate, the bigger the primary budget surplus a government needs to run in order to prevent the stock of public debt to G.D.P. rising, hastening the point at which debt becomes unsustainable.

What can the Germans do to rebalance their economy? More expansionary fiscal policy would help, particularly if this took the form of cuts in consumption taxes and lower taxes for people with low incomes. But fiscal policy alone cannot reflate the German economy because the obstacles to stronger domestic demand are to a large extent structural. One is the country’s system of collective wage bargaining, which delivers wage restraint even when the labor market is tight and corporate profits are at record levels. Last week, the new grand coalition agreed to introduce a minimum wage, which is a welcome first step, but negotiated wage settlements also need to rise strongly.