Wednesday 17 July 2019

Germany's €19bn trade surplus set for EC probe

Olli Rehn
Olli Rehn

Colm Kelpie

THE European Commission may launch an in-depth review of the German economy this week amid a fraught debate about the country's large current account surpluses, Economics Commissioner Olli Rehn has said.

Europe's largest economy has come under international pressure, especially from the United States, to do more to spur domestic demand amid allegations that it is too reliant on exports.

It's been claimed that this reliance is having an impact on the wider European and global economy.

Mr Rehn said that removing the "bottlenecks" to Germany's domestic demand would lead to a reduction in the country's trade surplus.

"Because these important issues deserve further analysis, the European Commission will this week need to consider whether to launch an in-depth review of the German economy in the framework of the EU's Macroeconomic Imbalances Procedure," Mr Rehn wrote in his blog.

"Such a review would provide both European and German policymakers with a detailed picture of the economic challenges and opportunities facing the eurozone's largest economy."

Mr Rehn wrote that in the context of the talks to form a new coalition government, it was important to look at the manner in an "analytical manner" to provide material for a well-informed debate.

Germany's seasonally adjusted trade surplus widened to €18.8bn in September.

The current account surplus of €19.7bn was more than 8pc of last year's economic output and above the 6pc threshold considered excessive in the EU.

The United States has criticised Germany for its large trade surplus, saying it was causing problems for its partners in the 17-country eurozone – importing goods and services from countries like Greece and Spain could help shore up those debt-laden economies. It urged Germany to push for more domestic-led growth.

Mr Rehn pointed out that the country's surplus has surpassed 6pc of GDP every year since 2007.

"True, the increase in domestic demand has doubled in the past two years when compared to the eurozone as a whole, but it is still modest," Mr Rehn said. "Meanwhile, private investment is set to fall again this year."

And he said investment in Germany has fallen from 21.7pc of GDP in 2000 to 17.6pc – "a significantly lower proportion than in other eurozone countries".


But while clearly laying out his thinking on Germany, Mr Rehn concluded on a more diplomatic tone. He also laid responsibility for economic recovery in Europe on France's doorstep, saying that the country should embrace reforms to its labour market.

He claimed that as the eurozone's two largest economies, France and Germany held the key to a return to growth and employment in Europe.

"If Germany can take steps to lift domestic demand and investment, while France embraces reforms to its labour market, business environment and pension system to support competitiveness, they will together do a great service to the entire eurozone – providing stronger growth, creating more jobs and reducing social tensions," Mr Rehn wrote.

A decision will be made on the review tom-orrow.

Irish Independent

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