EU To Investigate If Germany’s Trade Surplus Is Harming European Economy
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The European Union’s executive body, the European Commission, has launched an inquiry into Germany’s persistently high current account surplus, in order to determine if Europe’s largest economy was indirectly causing harm to the rest of the region, reported the Financial Times.
The European Union’s executive body, the European Commission, has launched an inquiry into Germany’s persistently high current account surplus, in order to determine if Europe’s largest economy was indirectly causing harm to the rest of the region, reported the Financial Times.
On Wednesday, EC President Jose Manuel Barroso would examine whether a high surplus in Germany “is something affecting the functioning of the European economy as a whole”, but stressed that the Commission was in no way a criticism of Germany or its policies.
“A high surplus does not necessarily mean that there is an imbalance,” Barroso told a news conference.
[quote]“We would like to have more Germanys in Europe… [and] our problem could never be German competitiveness but whether Germany, the EU’s economic powerhouse, could do more to help the rebalancing of the EU economy,” he said.[/quote]Germany has had a current account surplus in excess of 6 percent of its gross domestic product since 2007, meaning it exports far more than it imports from the rest of the world.
In September, the surplus reached 19.7 billion euros – more than 8 percent of last year’s economic output – and was the biggest in the world, beating even China.
Just last month, the U.S. Treasury also released a statement blaming Germany for hindering economic rebalance in Europe.
[quote]“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 to curb demand and compress imports in order to promote adjustment. The net result has been a deflationary bias for the euro area as well as for the world economy,” the U.S. Treasury said.[/quote]Related: US Treasury Says Germany Is Hurting World Economy
Related: Did Germany Force The Eurozone Into The Debt Crisis?: Michael Pettis
Related: Eurozone Crisis Saved Germany €80bn in Interest Payments
Barroso however took pains to avoid any provocative language.
“I expect the German authorities to fully understand and back our approach,” he said. “If there is a country that has emphasised the need to be objective, to respect the rules, it has been Germany.“
Olli Rehn, the Europe’s commissioner for economic and monetary affairs, added: “We are not criticising Germany’s external economic competitiveness or its success in global markets. In fact, that is what we want from all E.U. member states.”
[quote]“Germans themselves debate whether they invest enough in their own country,” Rehn later said. “More demand in Germany can also spill over to the vulnerable countries in varying degrees.”[/quote]Several leading figures in Germany has hit back at the U.S. Treasury report, as well as other criticism targeted towards it.
“Germany is repeatedly being urged at an international level to ease its fiscal policies so as to choke its current account surplus,” said Bundesbank chief, Jens Weidmann, as cited by AFP.
“But I don’t think this argument is particularly water-tight … (and) the positive spill-over effects would be minimal,” Weidmann argued.
[quote]Germany’s high surplus was “largely with countries outside the single currency area. The surplus with the eurozone has been narrowed by half between 2009 and 2012,” he said.[/quote]Rehn promised that “the in-depth review will be done with an open mind, and there should be no precooked conclusion.” He also urged struggling eurozone countries not to view the German inquiry as an opportunity to relax their own reforms, noting that growth in German demand would not help them unless their exports became more attractive.
The review is set to fall under new EU rules, which charges the EC with checking whether countries are developing dangerous economic imbalances.
A current account deficit larger than 4 percent of GDP or a persistently very large surplus above 6 percent are among the warning signs in the Commission’s scoreboard of around 30 economic indicators.
The in-depth review is likely to be finished in February or March next year. If it concludes that the surplus is excessive and therefore damaging to Germany and Europe’s economy, the Commission will recommend steps to rectify the problem.
