Trans-Atlantic Mood Sours as Merkel Refutes Trump on Euro

Updated on
  • Navarro in FT blasts Germany for exploiting ‘undervalued’ euro
  • EU’s Tusk says U.S. is ‘worrying’ source of unpredictability

Merkel Rejects Trump's Accusations on Euro

Chancellor Angela Merkel rejected an accusation by President Donald Trump’s top trade adviser that Germany is gaming foreign-exchange markets as European leaders grapple with the new U.S. administration.

Peter Navarro, the head of the White House National Trade Council, told the Financial Times that Germany’s excessive surplus is a sign of a “grossly undervalued” currency. Merkel pushed back, saying the exchange rate was the province of the European Central Bank and that the German government has long upheld the ECB’s independence.

Merkel in Stockholm, Jan. 31

Photographer: Jonathan Nackstrand/AFP via Getty Images

“We won’t exercise any influence over the European Central Bank, so I can’t and I don’t want to change the situation as it is now,” Merkel said in Stockholm on Tuesday. “We strive to trade on the global market with competitive products in fair trade with all others.”

The spat underscores growing global concern about direction of U.S. policy. More trade accusations came later on Tuesday when Trump said Japan plays “the devaluation market and we sit there like a bunch of dummies.” In Europe, it’s leading to questions about American support for decades of trans-Atlantic economic and defense ties. 

Source of Instability

With U.S. officials seeking to drive a wedge between EU nations, the bloc’s president, Donald Tusk, placed the U.S. alongside Russia, China and terrorism as a source of instability.

“The change in Washington puts the European Union in a difficult situation, with the new administration seeming to put into question the last 70 years of American foreign policy,” Tusk said in a letter to European leaders on Tuesday ahead of an EU summit on Feb. 3.

Abe, his main lieutenant in the cabinet and Japan’s top foreign exchange official on Wednesday all pushed back against charges that Japan is keeping its currency devalued. The barbs indicate likely friction points when Trump and Abe meet next week in the U.S.

Anxiety is also apparent in the U.K., where more than 1.5 million people signed a petition to Parliament calling for Trump to be denied a state visit after he ordered restrictions on immigration from seven mostly Muslim countries.

While aimed broadly at Europe’s biggest economy, Navarro’s broadside is an implicit challenge to Merkel, who is campaigning for a fourth term while presiding over the Group of 20 countries this year on a platform of free trade. She plans to host Trump at a G-20 summit in July, two months before Germany’s election.

Thin Argument

While an attack on the exchange rate adds a new dimension, Germany’s trade imbalance has been criticized for years by the International Monetary Fund and economists including former Federal Reserve head Ben Bernanke. Accused of holding back economic recovery in the 19-member currency union, Merkel’s government and German business groups defend the surplus as a product of competitive might while criticizing the ECB for record-low rates. 

“It’s really quite a thin argument to explain Germany’s export surplus largely with a low exchange rate,” Ralph Brinkhaus, a deputy leader of Merkel’s party caucus in parliament, said in e-mailed comments. “We Germans would be the last to oppose the ECB changing its monetary policy in a way that pushes up the euro.”

Trade Friction

As the U.S. administration seeks bilateral trade arrangements at the expense of multilateral deals, Navarro said Germany’s advantageous trade position within the EU was a main reason for the demise of a U.S.-EU trade accord, known as the Trans-Atlantic Trade and Investment Partnership. Germany “continues to exploit other countries in the EU as well as the U.S. with an ‘implicit Deutsche Mark’ that is grossly undervalued,” he was quoted as saying.

The comments echo Trump’s view, expressed in an interview with European newspapers days before his inauguration, that the EU is “basically a vehicle for Germany.” Trump went on to predict the EU’s possible disintegration as other member states would follow the U.K.’s exit, a process the president has embraced.

Henrik Enderlein, a professor of political economy at the Hertie School of Governance in Berlin, said on Twitter that Navarro “hasn’t understood euro or this is a serious conspiracy accusation.”

— With assistance by Rainer Buergin, and Birgit Jennen

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE