Experts trade blows over issue of Germany’s record surplus
Most Germans believe other businesses and economies should be more competitive, not that Germany should throttle its booming exports
Press conferences of Germany’s economic advisory council are usually a sober affair. The group’s official German name, the Sachverständigenrat, is such a multi-syllable mouthful that they’re known unofficially as the five wise men – even if one of the men is now a woman.
Their seasonal Berlin appearances involve the five economists handing over a doorstopper report to chancellor Angela Merkel, 502 pages, this week. They exchange a few pleasantries and then hold a press conference where they try to out-do each other with dry, airless analysis.
Not this time. Before the eyes of the delighted Berlin press pack on Wednesday, the five wise men turned into the five bickering men – and woman. The row reached a peak when they were asked about the announcement of a European Commission investigation into whether Germany’s trade surplus breaches the EU stability rulebook.
When one of the council members, Prof Peter Bofinger, called the criticisms of Germany justified, the other four disagreed vigorously. As the cameras rolled, they exchanged arguments about the trade surplus and Germany’s current account surplus. Although not new, it was unusual to hear the arguments debated so vigorously and so publicly in Germany.
Driving the debate is the sheer scale of Germany’s exports over imports: climbing rapidly since 2009, Germany is on course to post a record surplus of €200 billion this year. A long-running argument has taken on a new urgency.
The latest round in this debate was triggered by the US treasury report last month criticising Germany’s over-reliance on exports, its high current-account surplus and weak domestic demand.
Combined, these factors “have hampered rebalancing at a time when many other euro-area countries have been under severe pressure”, the report concluded, with an eye on budget consolidation in the euro zone periphery. “The net result has been a deflationary bias for the euro area, as well as for the world economy.”
A who’s who of international voices has, since then, backed the US: the French president, the Italian prime minister and the president of the International Monetary Fund (IMF), Christine Lagarde, among others.
In 2010, as French finance minister, Lagarde argued that Berlin’s export-driven boom and much-vaunted trade surplus were built on low labour costs that was costing its neighbours dear. As well as imposing deficit limits, surplus countries had a role to play in the currency bloc’s recovery by driving domestic demand, she said, noting that it “takes two to tango”.
Prompt and blunt
The German reaction, as always, is prompt and blunt. The economics ministry said the surplus was “a sign of the competitiveness of the German economy and global demand for quality products from Germany”.
In other words, Germany is the solution, not the problem. It is up to others in Europe to make their economies and companies more competitive as Germany has done, not for Germany to throttle its booming export business.
“To urge Real Madrid to side-line Cristiano Ronaldo would not help Malaga win the European Champions League,” wrote Prof Thomas Straubhaar, economist with Hamburg’s HWWI economist institute, in Die Welt newspaper.
“It would weaken the Spanish soccer league as a whole and would give the teams from other countries a better chance to win the tournament.”
The irony of this week’s news from Brussels is that Germany only has itself to thank for the EU investigation. As a lesson of the euro zone crisis, Berlin, along with other capitals, pushed to hand the commission more differentiated means to flag economic problems before they became an existential threat.
Existing instruments for public debt levels were supplemented with a tool to monitor excessive surpluses. The argument for this was that surpluses can also have a damaging and distorting effect on a currency bloc.