France, Germany Bicker over Export Surplus

French Finance Minister Christine Lagarde sparked a bitter row with an interview published in the Financial Times in which she called on Germany to curb its export surplus. She reiterated her position in remarks to the French radio station RTL, when she said that Germany could reduce taxes to boost domestic demand — which would free up more money to buy French products.

“An improvement in domestic consumption could help our exports to Germany, our most important trading partner,” Lagarde said.

In the Financial Times interview, Lagarde had said that Germany’s trade surplus threatens the competitiveness of other countries in the euro zone. “(Could) those with surpluses do a little something?” she asked.

Lagarde received prominent support in the form of her compatriot Dominique Strauss-Kahn, the head of the International Monetary Fund (IMF).

Speaking at an event at the European Parliament, Strauss-Kahn said countries such as China and Germany had to redress their trade surpluses as part of efforts to fix global economic imbalances.

“We have countries with huge deficits, the US for example, but also several European countries. They need to save more, having less domestic consumption to rely more on exports,” Strauss-Kahn said.

In countries with large current account surpluses, such as China and Germany, he added, “it has to go the other way round: Domestic demand has to go up with more consumption and investment.”

German Chancellor Angela Merkel, however, rejected calls for Germany to reduce its reliance on exports. “We will not give up our strengths in those areas where we are strong,” she told her country’s parliament.

Her government would pursue policies aimed at boosting Germany’s competitiveness, she said, adding that it was wrong for a country to adapt itself to “the slowest,” in a reference to less competitive members of the euro zone.