19th Oct 2019

Paris clashes with Berlin over impact of German exports

French finance minister Christine Lagarde on Monday (15 March) traded barbs with her German counterparts over Berlin's export-driven economic model and its potentially negative effects on the eurozone's troubled south.

In an interview published in the Financial Times, Ms Lagarde highlighted the trade imbalances Germany has created with other eurozone members by pushing for low labor costs and focusing on exports.

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  • Christine Lagarde questioned whether the German model is sustainable for the whole of the eurozone (Photo: Adam Tinworth)

"I'm not sure it is a sustainable model for the whole of the group," she was quoted as saying. "Clearly we need better convergence."

Some 43 percent of Germany's exports go to countries in the EU's single currency area, with some economists arguing that its trade imbalance has contributed to the troubles faced by Greece, Italy, Portugal and Spain.

While keeping its wage rates flat and boosting competitiveness, Germany has depressed domestic consumer spending, hurting other European exports to its own market, say its critics.

The German government on Monday strongly rejected France's comments. "To block the export economy now would ...go against the concept of competition in Europe," Christoph Steegmans, a spokesman for the German government, told reporters in Berlin.

German economy minister Rainer Bruederle used the opportunity, in an interview with the Frankfurter Allgemeine Zeitung, to point to France's lavish spending and lack of economic reforms.

"That countries that in the past lived beyond their means and neglected their competitiveness would now point a finger at someone else is indeed humane and politically understandable, but unfair nevertheless," he said.

He argued that German competitiveness was a "basis for growth, employment and welfare" both in his country and in Europe. "Our companies are in worldwide competition and the challengers from Asia and elsewhere are getting stronger and stronger," the minister said.

Last month, German officials confirmed that China in 2009 overtook their country to become the world's biggest exporter.

German EU commissioner Gunther Oettinger also defended his country's policy on Tuesday, pointing to the same "stiff competition" from other international players.

"We need more reforms in Europe, like those carried out in Germany. To turn back on such reforms would be to head in the wrong direction," the energy commissioner said in an interview for Sueddeutsche Zeitung.

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