Monday 22 January 2018

EU starts investigating German current account surplus

* Commission launches first ever in-depth review of Germany * High surplus not necessarily harmful - Barroso * Results of review expected next year

European Commission President Jose Manuel Barroso
European Commission President Jose Manuel Barroso

Jan Strupczewski and Martin Santa

The European Commission decided on Wednesday to prepare an in-depth analysis of Germany's persistently high current account surplus to find out if it is a sign of a serious imbalance in Europe's biggest economy.

Germany has had a current account surplus in excess of 6pc 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 €19.7bn - more than 8pc of last year's economic output - and was the biggest in the world, beating even China.

This has prompted criticism from the United States and the European Union that the German economy is relying too heavily on exports and that Berlin should pay more attention to raising domestic demand to put growth on a sounder footing.

The EU will recommend steps to fix the problem if the review, due to be finished early next year, finds the surplus is harmful.

"A high surplus does not necessarily mean that there is an imbalance," European Commission President Jose Manuel Barroso told a news conference.

"We do need to examine this further and understand whether a high surplus in Germany is something affecting the functioning of the European economy as a whole."

Relying too heavily on exports can leave a country vulnerable to a global shock because domestic buyers would not be able to make up for the drop in demand.

It also means that Germans are investing their savings abroad, making them vulnerable to events elsewhere and depriving their own economy of investment.

But the surplus highlights Germany's success in staying competitive in the world economy so criticism is politically tricky, because EU policy-makers encourage euro zone countries to undertake painful reforms to become more competitive and run a current account surplus, rather than a deficit.

Barroso noted that the surplus could indicate that Germany could do more to help rebalance the EU economy through raising German domestic demand and investment, and opening up the German services sector.

The analysis falls under new European Union rules, in place from the end of 2011, that charge the 28-nation's executive arm with checking that countries do not develop dangerous economic imbalances which could become a problem if not addressed.

A current account deficit larger than 4pc of GDP or a persistently very large surplus above 6pc 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 comes to the conclusion that the surplus is excessive and therefore damaging to Germany and Europe's economy, the Commission will recommend steps to fix the problem.

If Germany were to ignore such recommendations, it could be a fined 0.1pc of GDP.

Germany argues it has more than halved its current account surplus with the euro zone as a share of gross domestic product since 2007.

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