This article is part of our special report Jobs and Growth.
In its latest macro-economic survey, the European Commission again pointed the finger at Germany's high export surplus. Serious imbalances were also detected in Italy and France, euractiv.de reports.
Significant economic imbalances exist in 14 EU member states, according to the Commission’s latest in-depth review of macroeconomic imbalances, presented on Wednesday (5 March).
“Our analysis presented today shows that Member States are making progress in addressing their economic challenges. But this progress is uneven and in some cases must be stepped up,” Commissioner of Economic and Monetary Affairs Olli Rehn outlined in a statement.
The report echoes previous warnings from the José Manuel Barroso, the Commission President, who urged Germany last November 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.
‘Every EU member state should be as competitive as Germany’
Due to Germany’s high account surplus, the Commission sees room for improvement. The Federal Republic currently boasts an export surplus of roughly €200 billion, the world’s biggest in 2013.
The fact that Germany exports much more than it imports “reflects strong competitiveness,” the Commission report says, but “it is also a sign that domestic growth has remained subdued and economic resources may not have been allocated efficiently,” it points out.
Seeking better balance, Rehn also emphasised the significant role played by big EU member states like Germany in propelling Europe’s growth. In southern European crisis states, whose development is traced separately, economic recovery and budgetary consolidation is progressing.
The Commission is not criticising Germany for having strong export performance and high competitiveness, Rehn told the press in Brussels. On the contrary, he said that he hoped every member state of the European Union would become as competitive as Germany.
In Germany’s case, the Commission’s main focus is on low domestic investment and strengthening domestic demand. According to Rehn, there are three key areas which must be tackled to strengthen domestic demand: investment, services and child day-care.
German government says trade imbalances harm eurozone stability
MEP Werner Langen from Germany’s Christian Democratic Union (CDU) praised Commissioner Rehn for not blowing on the “horn of left-wing EU politicians”. The latter, he said, constantly criticise Germany’s export strength as a cause for lacking competitiveness in weaker eurozone states.
Critics complain that high export surpluses in Germany’s economy have detrimental effects on other countries, where debt rises as a result. For example, during the euro zone debt crisis, the United States, urged Germany to do more to raise domestic consumption and address the problem.
German officials rebuffed those claims, arguing that the country’s high trade surplus was a natural byproduct of the strong competitiveness of German businesses.
That may be changing as the German government now seems to be more open-minded. For the first time, an internal paper from the economics ministry acknowledges that excessive and sustained trade imbalances are harmful for the stability of the eurozone, the Süddeutsche Zeitung reported on Wednesday. As a result, it is right for the Commission to put such imbalances under the microscope, the document said.
Imbalances across the EU
The Commission also noted excessive imbalances in Croatia, Slovenia and Italy, with the latter suffering from an unsustainably high level of public debt and weak competitiveness. Lesser imbalances were observed in countries like France and Italy, who were both advised to “address bottlenecks to medium-term growth while working on structural reforms and fiscal consolidation”.
Spain, on the other hand, has seen considerable improvements over the past year, the Commission report pointed out. Although imbalances are shrinking, the analysis shows that Spain must continue with “orderly deleveraging and structural transformation of the economy”.
In-depth reviews were considered necessary for Denmark, Luxembourg and Malta, but their results showed no economic imbalances. Greece, Cyprus, Portugal and Romania are not subject to the MIP because they are already under EU surveillance through their respective economic adjustment programmes.
All member states, including the German government, must prepare a response to the Commission review by April 2014.