Could Germany do more?

germany's flag<p>germany's flag</p>

In 2013, Germany’s foreign trade surplus reached €198.9 billion, based on provisional data from the Federal Statistical Office (Destatis). It was the highest value recorded since the beginning of compiling those statistics and reached a 6.1 % of the GDP. According to Bundesbank’s provisional data, German current account in GDP was equal to 7.34 % in 2013.

But while Germany was in an election year and Europe was definitely trying to get out of recession through cuts and reforms following Berlin’s economic model, the largest economy in Europe started to receive criticism from all sides.

In October 2013, American Treasury’s report to Congress on International Economic and Exchange Rate Policies, the Obama administration criticized Germany for maintaining a large trade surplus throughout the euro zone.

“Stronger domestic demand growth in surplus European economies, particularly in Germany, would help to facilitate a durable rebalancing of imbalances in the euro area,” the report said. The net result of these imbalances has been a “deflationary bias for the euro area, as well as for the world economy,” also warned the US Treasury.

While the conversations to form the Grand Coalition between CDU and PSD were taking place, the IMF’s first Deputy Managing Director David Lipton suggested in Berlin’s American Academy that Merkel’s government should reduce its export surplus to help its euro area partners cut their deficits.

After the US and the IMF, the European Commission also admonished Germany. First was Olli Rehn, Commissioner responsible for economic and monetary affairs, when he requested Germany to create the conditions for sustained wages growth and to stimulate competition in services in order to boost domestic sources of growth.

“All this would enhance Germany’s economic performance and welfare and could help reduce the inequalities that have accumulated in recent years. But it would also have a significant positive impact on the euro zone economy,” wrote Olli Rehn in its own blog.

After Olli Rehn, the European Commission President Jose Manuel Barroso announced in November that it will launch a review of Germany’s economy to know “what are the consequences in the euro-area of theses imbalances,” referring Germany’s current account surplus exceeding 6% of Gross Domestic Product (GDP) in the last years. If the Government doesn’t take measures to correct the problems, the conclusions of the investigation in spring of 2014 could end with a fine of up to 0.1% of German GDP. Germany could do more to support growth,” concluded Barroso.

The German Federal Statistical Office (Destatis) just published the 2013 foreign trade provisional data. In the past year, German exports dropped by 0.2 percent over 2012 to €1.09 trillion and imports fell 1.2 percent to €895 billion. Exports to the EU amounted to €623.5 billion, while purchases from the EU countries reached €577.6 billion, achieving a surplus of €45.9 billion.

However, goods to the value of €401.9 billion (–1.2%) were dispatched to the Euro area countries in 2013, while the value of the goods received from those countries was €401.2 billion (–0.2%), creating a limited surplus.

Although German economy performance seems immune, “with a rapidly ageing population, increased savings invested in more dynamic parts of the global economy do make sense. And this necessitates a current account surplus in global trade for goods and services. At the same time, exports are likely to decrease over the next decades with a declining labour force,” says Michael Wohlgemuth, director of think tank Open Europe Berlin.

After the new coalition government in Germany was formed past December, Bundesbank President Jens Weidmann declared in a public event that Germany is facing some “long-term challenges as demographic change, the energy debate and structural changes brought about by globalization.” In all the German policy decisions, Germany’s competitiveness should remain always as the main issue, he warned. “I fear that we are so busy keeping an eye on the peripheral countries that we risk losing sight of what is still to be done in Germany,” explained Weidmann.

For their part, countries like Spain, Italy and Portugal continue to improve their balance of payments, although it has been partly achieved by depressing domestic consumption and despite a strong euro is hindering exports to markets outside the eurozone. “A rise in domestic demand in Germany should help to reduce upward pressure on the euro exchange rate, easing access to global markets for exporters in the periphery”, concluded Olli Rehn.

Nevertheless, according to Eurostat data, European economy accelerates and GDP rose by 0.3% in the euro area in the fourth quarter of 2013 and according to the preliminary results from European Central Bank (ECB) for 2013 as a whole, the seasonally adjusted current account recorded a surplus of €221.3 billion (around 2.3% of euro area GDP), compared with a surplus of €128.6 billion in 2012 (around 1.4% of euro area GDP). This increase resulted from increases in the surpluses for goods (from €98.8 billion to €175.8 billion), services (from €88.6 billion to €104.9 billion) and income (from €49.8 billion to €61.4 billion), which were partly offset by an increase in the deficit for current transfers (from €108.6 billion to 120.8 billion). Especially this great performance couldn’t be possible without German involvement.


About the Author

Alberto Lozano
Alberto Lozano is The Corner correspondent in Berlin, from where he reports about the main German and European economic and political topics. He has been a contributor to various media such as RTVE, PressEurop, Esquire and Forbes. Alberto holds a degree in Journalism from the Complutense University in Madrid and the Free University of Brussels.

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