Barroso urges Germany to act on euro imbalances

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European Commission President José Manuel Barroso urged Germany on Tuesday (5 October) to do more to address economic imbalances in the eurozone by opening up its services market and allowing wages to rise at a faster pace.

In a speech in St. Paul's Church in Frankfurt, the seat of the first democratically-elected parliament in Germany, Barroso said Germany had "homework" to do to ensure stability in the currency bloc, borrowing one of Chancellor Angela Merkel's favourite terms for prodding reform in the struggling south.

"Stronger economies paying for the weaker economies is not the answer," Barroso said. "What we do need, in contrast, is the correction of existing macro-economic imbalances, notably in the euro area. This is where Germany by its own legitimate interest can give a contribution."

Barroso's language was softer than that of the United States, which reprimanded Germany last week for relying too heavily on exports, an approach it said hampered economic stability in Europe and hurt the global economy.

But his message was similar. He said Europe's single market in its current form allowed Germany to "play out its competitive advantages" in technology and industry.

"In turn, Germany could do more to enable also the others to bring in their respective assets, for example, through free and unhindered access to the service markets across Europe including Germany, or through wages in line with productivity," he said.

"Thus more open markets in the stronger economies would be a very important contribution to the recovery of the weaker economies."

Germany has exported more than it imports since 1952, running a trade deficit only in the early years of economic devastation after World War Two. Its trade surplus is largest vis-a-vis France, the United States and Britain.

Merkel's government has rejected the US criticism, spelled out in a semi-annual report by the Obama administration to Congress, that it should do more to spur imports.

German officials point out that Europe's largest economy has more than halved its current account surplus with the euro zone as a share of gross domestic product since 2007.

Trade is expected to subtract from rather than support economic growth in 2013, and wages have been rising steadily in recent years, after a decade of stagnation, boosting domestic demand.

Despite this progress, Germany's overall current account surplus still stood at 6.9% of gross domestic product (GDP) last year – higher than the 6% threshold that Barroso's European Commission considers excessive.

Background

The European Commission unveiled its second review of economic imbalances in 13 EU countries in April, a new process launched under the so-called "semester" of economic and budgetary review in the eurozone.

The early warning system was set up after problems in Greece, Ireland and Portugal triggered the eurozone sovereign debt crisis and forced the bailing out of four member states.

The Spring 2013 assessment revealed deepening economic problems in France, Italy and Spain, which could face fines if they do not correct course.

Of particular concern is Slovenia, which was invited to take urgent steps to offset the risk of a wider destabilisation across the eurozone.

>> Read: EU rings the alarm bell for France, Italy, Spain and Slovenia

Further Reading

European Commission

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