Tuesday

16th Jul 2019

EU commission ups pressure on Germany, France

Germany's trade surplus and France's "unacceptably" high taxes are set to be at the heart of the European Commission's economic policy recommendations on Wednesday (13 November).

The two largest economies in the eurozone "hold the key to a return to growth and employment in Europe," economics commissioner Olli Rehn wrote on his personal website on Monday.

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  • Criticised for different reasons: France's Hollande and Germany's Merkel (Photo: elysee.fr)

"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," he said.

Germany's trade surplus of over six percent of GDP every year since 2007 stems from strong exports and weak internal demand. Critics in southern countries say this hinders their weak economies from recovering.

The US treasury and the International Monetary Fund recently made a similar argument, saying Germany should boost internal consumption and wages in order to help other eurozone countries.

On Wednesday, the EU commission is likely to follow suit and launch a probe into the macroeconomic "imbalance" in Germany.

The German government so far has dismissed such criticism and maintained that the country is an "anchor of stability and growth" in Europe.

But with a new coalition currently being negotiated with the centre-left Social Democrats, some changes - including a minimum wage - look likely to go in the direction asked for by the EU and US.

France, meanwhile, is under criticism for other reasons.

The commission earlier this year gave Paris an extra two years, until 2015, to bring its public deficit down to the EU threshold of three percent of GDP.

In return, France was asked to stick to labour market reforms and avoid tax hikes.

EU commission chief Jose Manuel Barroso said in Paris on Monday that French taxes have "reached the limits of acceptability."

"France is by far the country [in the EU] where companies pay the highest taxes and that's a problem for growth and employment," he told French TV network LCI.

He also urged France to "reduce public spending."

His statements came a few days after the country was downgraded by credit ratings agency Standard and Poor's, which cited France's sluggish economy and reduced appetite for reforms as reasons for its cut.

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