13 November 2013

EU to review excessive German trade surplus

The European Commission will launch an in-depth review into Germany's high current account surplus to see if its strong exports undermine EU markets. Germany stands accused of creating dangerous economic imbalances.

Deutsche Welle reports that European Commission President José Manuel Barroso announced on Wednesday that the body would scrutinise Germany's high current account surplus to see if it was affecting the functioning of the EU's economy as a whole. He said that the in-depth review was meant to determine whether Germany could do more to help rebalance the EU economy and triggered automatically by economic data.

In September, Germany's trade surplus hit a record high as exports exceeded imports by €18.8 billion. As a result, the United States as well as the International Monetary Fund (IMF) criticised the country saying it was causing problems for its eurozone partners. Noting that Germany had a special responsibility within the eurozone, Barroso also said, however, that the real problem went beyond the country's ability to compete.

The probe against Germany comes within the framework of the EU's Macro-economic Imbalances Procedure, which looks into economies that run trade surpluses exceeding 6 per cent of their gross domestic product (GDP) for years. It doesn't mean that a country under review is automatically at risk of facing EU sanctions. However, punitive measures could be applied down the road if a state failed to address the imbalances. They might amount to a fee of 0.1 per cent of a country's GDP, which in the case of Germany would mean several billion euros.

EuropeanVoice (subscription) writes that politicians in Germany have already reacted angrily to recent suggestions, most notably by the United States Treasury, that Germany is importing too little, hampering the EU's economic recovery. Commissioner Rehn said that the Commission was "not criticising Germany's external economic competitiveness" but needed to address the question of "whether this is efficient, even from the German perspective".

The big question, however, is what Brussels authorities would be able do about the problem, other than criticise. The review will last for several months. In the spring, the Commission can propose to eurozone finance ministers that they declare that the imbalance to be excessive. However, the EU agreed last year that countries running current account surpluses wouldn't face fines for imbalances.

"In our analysis the surplus is not caused by German government decisions, but by the strength of the German economy and German firms", government spokesman Stefan Bredohl reiterated on Monday, reported Wall Street Journal. 

EU governments have long urged Germany to do more to bolster domestic demand, which would boost imports, by cutting taxes, for example, or pressing for wage increases. But such calls have so far had little impact. German demand "has doubled in the past two years when compared with the eurozone as a whole, but it is still modest", Mr Rehn wrote in a blog post published Monday. "Meanwhile, private investment is set to fall again this year."

See also European Semester statements: Barroso / Rehn