Business World

Tuesday 12 December 2017

Germany called to task on rising trade surplus

Patrick Donahue and James G Neuger

The European Union has threatened a probe of Germany's trade surplus, adding to criticism from the US and the International Monetary Fund (IMF) that the German reliance on exports is hindering Europe's economic recovery.

The review would follow the European Commission forecast yesterday that Germany's current-account surplus will reach 7pc of output this year and 6.6pc in 2014. That's up from a May estimate of 6.3pc and 6.1pc respectively.

"We will discuss this question next week," EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels after the commission published economic forecasts. He said Germany has exceeded the EU guideline of a 6pc surplus limit since 2007.

German Chancellor Angela Merkel's government bridled last week at a US Treasury report that rebuked German surpluses as a drain on European and global growth. Germany, which accounts for almost a third of the euro-area economy and views itself as a model for the 17-member bloc, said last week the critique was "not justified" and that exports were a sign of strength.

Mr Rehn added to calls for Germany to do more to boost consumption and foster higher wages. He recommended tax cuts, reductions in social contributions and infrastructure spending.

"To open the bottlenecks to the growth of domestic demand, Germany should create conditions for sustained wage growth," Mr Rehn said.

He said that the Netherlands, Finland, Denmark and Sweden have confronted such probes in the past.

Ultimately, countries can be fined for failing to correct imbalances under a euro-area law designed to strengthen Europe's competitiveness – a regulation that Germany endorsed as part of the response to the debt crisis.

The IMF also reprimanded Germany for its surpluses last week, urging Mrs Merkel's government to curtail its export surplus to an "appropriate rate" to help euro partners cut deficits.

COMPETITIVENESS

Mrs Merkel's party, now in talks with Social Democrats to form a new government, signaled that the negotiators were standing by Germany's export strength even as they consider a range of new spending initiatives.

"Our conviction together is that the export strength and the competitiveness of the German economy as well as strong domestic demand – both are important for our country," Hermann Groehe, the general secretary of Ms Merkel's Christian Democratic Union, told reporters yesterday after the latest round of talks.

"We urgently encourage others to work on their competitiveness just as much," Mr Groehe said. (Bloomberg)

Irish Independent

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