Wednesday

17th Oct 2018

Germany to face EU trade surplus probe

  • Barroso: EU trade surplus report not an attack on Germany

The European Commission Wednesday (13 November) said it would investigate whether Germany's trade surplus hampers economic growth across the rest of the eurozone.

The review is one of sixteen alert mechanism reports assessing whether countries have serious imbalances in their economies as part of the so-called European Semester, which itself forms part of the bloc's beefed-up economic governance programme.

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Luxembourg and the bloc's newest member, Croatia, are the two other additions to the procedure.

Meanwhile, the thirteen countries subject to review last year will also be re-assessed, with all the findings to be published in spring 2014.

In 2013, Germany is expected to run a surplus worth 7 percent of GDP for the second year in a row, comfortably the largest in the eurozone.

Critics argue that Berlin's commitment to wage restraint keeps domestic consumption unnecessarily low which, in turn, makes it harder for other eurozone countries, particularly in the south, to regain competitiveness.

However, at a press conference on Wednesday (13 November) both the EU's executive's President Jose Manuel Barroso and economic affairs commissioner Olli Rehn insisted that the probe was not an attack on the German economy.

"This should not be seen as a commission attack on Germany's competitiveness," said Barroso, although he conceded that Germany had been "the biggest winner from the internal market," and should open up its services sector.

For his part, Rehn played down the significance of the report. commenting that they would improve understanding of the internal developments of their economies.

"There is already a lively and simplistic debate on what a large surplus means…particularly for Germany," said Rehn. "The problem is not German competitiveness but whether Europe's industrial powerhouse should do more," he added.

But the move sparked immediate anger in Berlin where the country's consistent record in producing far more than it consumes is regarded as a virtue rather than a vice.

As a result of its size as the eurozone's largest economy, Germany accounts for most of the overall current account surplus across the eurozone.

The country has also come under pressure to stimulate domestic demand from the US.

In spring, Jack Lew made Germany his first port of call as US Treasury secretary calling on finance minister Wolfgang Schaueble to kickstart the eurozone economy by stimulating domestic demand.

Speaking with EUobserver, Carsten Brzeski, chief economist for ING, commented that the probe would "eventually end as a storm in a tea cup."

"The German export success stems from strong demand from outside the Eurozone. No one will seriously ask the Germans to close their factories for a long 'rebalancing vacation' or become less competitive. It is not about the exports as such but about what the Germans do with these surpluses," said Brzeski.

Spain and Slovenia were the main culprits from the first set of reports with both countries found to have "excessive imbalances".

Meanwhile, France, Italy and Hungary were given warnings to put in place policies aimed at increasing the competitiveness of their labour markets.

France needed to take further steps to correct "sustained losses of competitiveness," Barroso said, calling on Francois Hollande's government to use the extra two years given by the commission earlier this year to correct its excessive deficit, "tackle unemployment and improve its business environment."

Failure to take adequate steps to correct 'imbalances' carries the threat of a fine worth 0.1 percent of GDP.

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