Germany hits back at trade surplus criticism

13th November 2013, Comments 0 comments

Leading economic figures in Germany hit back at growing criticism of their country's high trade surplus Wednesday, saying the onus is on EU partners to make their economies more competitive.

"Germany is repeatedly being urged at an international level to ease its fiscal policies so as to choke its current account surplus," said the head of the German central bank or Bundesbank, Jens Weidmann.

"But I don't think this argument is particularly water-tight. The euro area's crisis countries would hardly stand to benefit from easier fiscal policy here. The positive spill-over effects would be minimal," Weidmann argued.

He said that the current account balances between the different euro area countries had shifted noticeably in recent years.

"Germany may still have a high surplus. But largely with countries outside the single currency area. The surplus with the eurozone has been narrowed by half between 2009 and 2012," he said.

The strong demand for German-made goods was coming primarily from countries outside Europe, the Bundesbank chief said.

"The answer to Germany's high current account surpluses cannot lie in making German companies less competitive. It can only lie in solving the competitive handicaps of the deficit countries and setting German growth on a wider footing," Weidmann said.

His comments came as European Commission chief Jose Manuel Barroso suggested Germany's high trade surplus could be seen as a hindrance to recovery across the rest of unemployment-laden Europe.

Indeed, Brussels has placed Germany placed under scrutiny to see what could be done to correct the imbalance.

"The issue is whether Germany ... could do more to help rebalance the European economy," Barroso said.

Germany's ballooning trade surplus -- which topped a record 20.4 billion euros ($27.4 billion) in September -- is increasingly becoming a source of friction with its international partners.

Last month, the US Treasury riled Germany by saying that it needed to tap its surpluses to boost demand and help the eurozone pull back from deflation.

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," the US Treasury said.

Similar sentiments were subsequently expressed by the EU Commission, which said that Germany needs to boost domestic demand and so help its EU partners rather than continue to rely mostly on exports for growth.

Long the envy of its European Union partners for its strong public finances and powerful economy, Germany runs a huge trade surplus as one of the world's top exporters with China and the United States.

"Let's be clear on this, we are not criticising Germany's ... success in global markets," insisted EU Economic Affairs and Euro Commissioner Olli Rehn.

Among the reasons why the Germany has fared so much better than its European partners and its economy is in fairly good shape are the deep and painful economic reforms it undertook many years ago.

And Berlin insists that other eurozone countries must go down a similar path.

Earlier Wednesday, Germany's "Five Wise Men" panel of economic experts warned that Europe's biggest economy must not rest on its laurels.

"The present economic situation and Germany's healthy position compared to the euro area's crisis countries seem to have obstructed many politicians' view of the major future challenges," the report said.

Following the general election on September 22, Merkel's conservative CDU and CSU parties have been holding talks on a possible "grand coalition" with the Social Democrat SPD.

Among a range of different measures under discussion are possible exemptions to the new retirement age of 67, minimum wages and tax increases.

"The German government should not give the impression that it expects -- or even demands -- painful adjustment processes from other countries, but shies away from unpopular measures for Germany," the report said.

Turning to the economic outlook, the panel said that global growth was expected to accelerate from 2.2 percent this year to 3.0 percent next year.

The eurozone as a whole would see its economic contract by 0.4 percent in 2013, owing to "the year's weak start." But it would expand by 1.1 percent next year.

"The upturn now evident is buoyed by the very expansionary monetary policy in many countries, but is not yet able to sustain itself given the high levels of debt remaining," the report said.

"Against this backdrop, the economic situation in Germany is likely to brighten in 2014; gross domestic product growth will be just 0.4 percent in 2013, but 1.6 percent in 2014," it predicted.

© 2013 AFP

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