IMF Backs U.S. Treasury in Criticizing German Exports
The International Monetary Fund joined the U.S. Treasury Department in rebuking Germany’s trade surpluses, rebuffing the claim of Chancellor Angela Merkel’s government that booming exports are a sign of economic health.
As Germany bristled over a Treasury report critical of its current-account surpluses, the fund’s First Deputy Managing Director David Lipton urged Merkel’s government to reduce its export surplus to an “appropriate rate” to help its euro-area partners cut deficits. The Treasury report berated Germany’s export focus during Europe’s debt crisis, saying its neglect of domestic demand has delayed ending the misery.
A “significantly smaller current account would be useful,” Lipton said last night at a speech at Berlin’s American Academy. Cutting excessive deficits in the euro area “simply can’t happen unless surpluses are down as well.”
The spat over the influence of Germany’s economic policy in Europe and beyond coincides with a diplomatic row over U.S. spying on allies and the possible tapping of Merkel’s mobile phone. German officials were at the White House this week probing the allegations, while lawmaker Hans-Christian Stroebele met former National Security agency contractor Edward Snowden to talk about testifying in Germany.
Lipton urged Germany to “lift its sights to the global horizon” in forming policy. Europe’s largest economy, where every second job in industry depends on exports, was the world’s third-largest exporter in 2012, selling more than 1.36 trillion euros ($1.85 trillion) in goods and services abroad in a 2.66 trillion-euro economy.
Germany today reiterated its rejection of the Treasury report, saying it doesn’t merit criticism. “There are no imbalances in Germany which require a correction of our growth-friendly economic and fiscal policy,” Finance Ministry spokesman Martin Kotthaus told reporters in Berlin. At the same conference, Economy Ministry spokesman Stefan Rouenhoff said economic growth next year will be driven by domestic demand.
While the U.S. Treasury acknowledged a rebound in the country’s domestic demand as the 17-member euro bloc emerges from recession, German growth, it said, “continues to rely on positive net exports, which continues to delay the euro area’s external adjustment process.”
The toll is being taken by indebted euro countries such as Greece and Ireland, which have come under “severe pressure to curb demand and compress imports in order to promote adjustment,” according to the U.S. report.
“The net result has been a deflationary bias for the euro area, as well as for the world economy,” the Treasury said.
Lipton said the IMF isn’t asking Germany to “change its business model” but to bring domestic demand within Germany into better balance by fostering wage growth and investment.
While Merkel has said her government has done enough to spur consumption, she’s coming under pressure from the Social Democrats to set a legal national minimum wage to curb a growing wealth gap. Her potential coalition allies seek a blanket hourly minimum of 8.5 euros. At election rallies ahead of Sept. 22’s national election, Merkel championed Germany’s export-heavy policy as a model for others to follow.
Holger Schmieding, chief economist at Berenberg Bank in London, dismissed the U.S. criticism as not taking into account a rebalancing that has already taken place and underestimating the effect Germany’s competitiveness is having on other euro-area nations.
While Germany’s foreign-trade balance last year was at 188 billion euros ($255.4 billion) the second-largest since 1950, its current account showed a 6.3 percent surplus measured against gross domestic product. That’s within the corridor of the IMF’s “norm” of 6 percent to 6.5 percent. Some 69 percent of Germany’s exports went to European countries while 70 percent of its imports were from those partners.
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