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EU to decide if German trade surplus needs review

By: | at 03:58 PM | International Trade  

The European Commission will decide whether to scrutinize Germany’s trade surplus for economic imbalances, the Commissioner in charge wrote, adding that boosting domestic demand would help Europe’s largest economy.

“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.

“Instead, this is about having a factual dialogue in order to recognize potential problems early and to address them,” Rehn continued, in an editorial for the daily Frankfurter Allgemeine Zeitung published.

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.

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

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

European Commission President Jose Manuel Barroso used softer language in Frankfurt last week but his message was similar: Germany had “homework” to do on stability in the euro zone.

A spokesman for the EU Commission confirmed on Monday 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 percent 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. (Reuters)