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EU Floats Probe of Germany as Trade Surplus Seen Rising

Port of Hamburg
The IMF also reprimanded Germany for its surpluses last week, urging Merkel’s government to curtail its export surplus to an “appropriate rate” to help its euro-area partners cut deficits. Photographer: Krisztian Bocsi/Bloomberg

The European Union threatened a probe of Germany’s trade surplus, adding to criticism from the U.S. and the International Monetary Fund that the German reliance on exports is hindering Europe’s economic recovery.

The review would follow the European Commission forecast today that Germany’s current-account surplus will reach 7 percent of output this year and 6.6 percent in 2014. That’s up from a May estimate of 6.3 percent and 6.1 percent respectively.

“We will discuss this question next week,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels after the commission published economic forecasts. He said Germany has exceeded the EU guideline of a 6 percent surplus limit since 2007.

Chancellor Angela Merkel’s government bridled last week at a U.S. Treasury report that rebuked German surpluses as a drain on European and global growth. Germany, which accounts for almost a third of the euro-area economy and views itself as a model for the 17-member bloc, said last week the critique was “not justified” and that exports were a sign of strength.

Rehn added to calls for Germany to do more to boost consumption and foster higher wages. He recommended tax cuts, reductions in social contributions and infrastructure spending.

“To open the bottlenecks to the growth of domestic demand, Germany should create conditions for sustained wage growth,” Rehn said. He said a review of Germany was not “such a particular exercise” and that the Netherlands, Finland, Denmark and Sweden have confronted such probes before.

Fines Possible

Ultimately, countries can be fined for failing to correct imbalances under a euro-area law designed to strengthen Europe’s competitiveness -- a regulation that Germany endorsed as part of the response to the debt crisis.

The IMF also reprimanded Germany for its surpluses last week, urging Merkel’s government to curtail its export surplus to an “appropriate rate” to help euro partners cut deficits.

Merkel’s bloc, now in talks with Social Democrats to form a new government, signaled that the negotiators were standing by Germany’s export strength even as they consider a range of new spending initiatives.

“Our conviction together is that the export strength and the competitiveness of the German economy as well as strong domestic demand -- both are important for our country,” Hermann Groehe, the general secretary of Merkel’s Christian Democratic Union, told reporters today after the latest round of talks.

“We urgently encourage others to work on their competitiveness just as much,” Groehe said.

‘Quality Products’

Germany’s Economy Ministry said on Oct. 31 that surpluses “are a sign of the competitiveness of the German economy and global demand for quality products from Germany.” The ministry declined to comment on the possible EU probe today.

Today’s report by the commission said that domestic consumption will be the main source of German growth. Low interest rates, climbing wages and a steady labor market will help foster consumer spending, it said.

“Domestic demand is projected to continue to act as the main growth driver over the forecast horizon” as export growth slows, the commission said as part of its autumn forecast.

Waning export growth because of slowing economies outside the EU and an appreciating euro will be more than offset by domestic consumption, the commission said.

It forecast German economic growth of 0.5 percent this year and 1.7 percent in 2014 and “a further gradual reduction in the unemployment rate” to 5.3 percent next year, with the budget recording a surplus of 0.1 percent.

Real unit labor costs will decline 0.2 percent this year and next after an increase of 1.6 percent in 2012, it said.

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