Brussels to up pressure on Berlin for weak domestic demand


The European Commission will decide this week whether to scrutinise Germany's trade surplus for economic imbalances, which would undermine the nascent eurozone recovery, Olli Rehn wrote in an op-ed in the Frankfurter Allgemeine Zeitung.

"This week the Commission will have to decide whether a deeper analysis is warranted for Germany. Such an examination should be no taboo. That would help neither Germany nor Europe," EU Economics and Monetary Affairs Commissioner Olli Rehn wrote in a newspaper editorial on Monday (11 November)

"Instead, this is about having a factual dialogue in order to recognise potential problems early and to address them," Rehn continued, in the daily Frankfurter Allgemeine Zeitung.

International pressure has mounted – especially from the United States, but also within the EU – for Germany to do more to spur domestic demand, with criticism that its reliance on exports is hurting Europe's economic stability and the global economy.

In September, Germany's trade surplus hit a new record as exports climbed across the board, data showed on Friday.

The seasonally adjusted trade surplus widened to €18.8 billion in September. The current account surplus of €19.7 billion was more than 8% of last year's economic output and above the 6% threshold considered excessive in the EU.

The US administration reprimanded Germany in strong terms for its economic imbalances in its semi-annual report to Congress late last month.

Speaking in Paris on Monday, European Commission President Jose Manuel Barroso confirmed that the decision would be made on Wednesday but said: "in principle, we're going to do it."

"There are indicators on macroeconomic imbalances, it's true that the trade surplus of Germany is above what is normal," he told LCI television.

The goal, he said, was not to reduce Germany's competitiveness but rather to increase that of other countries.

In Frankfurt last week, Barroso used softer language, saying Germany had "homework" to do on stability in the eurozone.

A spokesman for the EU Commission confirmed that the institution would decide on Wednesday on the "publication of the alert mechanism report".

"This is an annual report which identifies member states where we feel … there may be macroeconomic imbalances," Simon O'Connor told a regular news conference in Brussels.

If an in-depth review comes to the conclusion that the surplus is causing imbalances to Germany's and Europe's economy and Germany does not take the recommended steps to fix the problem, the final result can be a fine of 0.1% of GDP.

"But of course we can't prejudge Wednesday's decision. We need to wait and see what the conclusions of these analyses will be and then see what recommendations are made to member states," O'Connor added.

Germany argues it has more than halved its current account surplus with the euro zone as a share of gross domestic product since 2007.

Rehn, who stressed that any review would be open-ended, said Germany should "remove bottlenecks for demand growth".

"The conditions for wage growth that supports domestic demand should be kept up, for instance by reducing the high tax and duty burden, in particular for low earners," Rehn wrote.   

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