Brussels launches inquiry into Germany's current account surplus

The EC believes Germany could do more to rebalance Europe's economy by reducing its reliance on exports.

Story highlights

  • José Manuel Barroso launches inquiry into Germany's current account surplus
  • EC and U.S. believe German strength is harming wider European economy
  • German surplus has remained above EU's 6% threshold for several years
  • German Bundesbank chief: Move could hit competitiveness of German firms
José Manuel Barroso has launched an inquiry into whether Germany's large current account surplus is harming the wider European economy.
The European Commission president took pains to emphasise on Wednesday that the commission's "in-depth review", launched as part of its annual examination of eurozone economies, was not criticising the competitiveness of German industry or its broader economy. But he said there were sectors of the German economy, particularly the service sector, that should be liberalised and could stimulate demand.
"Europe needs more Germanys," he said.
"Our problem will never be German competitiveness, but whether Germany, Europe's economic powerhouse, could do more to rebalance Europe's economy," Mr Barroso added.
The commission's move, one of 16 countries put in the dock as part of its "macroeconomic imbalance procedure", comes after the US Treasury department last month issued an unusual attack on German economic policy, saying its reliance on exports while suppressing demands at home was hindering eurozone and global growth.
Olli Rehn, the commission's economic chief, said he lamented the "excessive politicisation" of the issue, but welcomed the attention the move was attracting, saying it was a sign that Brussels' new crisis-fighting measures were being taken seriously.
Mr Rehn said struggling countries on the periphery of the eurozone should not view the move as an opportunity to relax their reforms, noting that growth in German demand would only help healthier economies in Europe -- or China -- unless their exports became more attractive.
"More demand in Germany can spill over to vulnerable countries," Mr Rehn said. "The precondition is their products [in struggling countries] have to be competitive."
Jens Weidmann president of Germany's Bundesbank, said in a speech on Wednesday that Germany was constantly coming under international pressure to loosen its fiscal policy, in particular to rein in its current account surplus. But he said he did not think such arguments were sound, arguing that crisis-hit countries in the eurozone would not profit much from a more expansive fiscal policy in Germany. "The positive knock-on effects would be limited," he said.
He added that the answer to Germany's high current account surplus could not be to worsen the competitiveness of German companies.
In its "alert mechanism report", the commission said it would launch the inquiry after finding Germany's surplus has remained above the EU's 6 per cent threshold for several years, "suggesting that it is not a shortlived cyclical phenomenon" and could throw off efforts by struggling eurozone countries to recover.
"They may put pressure on the euro to appreciate," the commission wrote. "In case such pressures materialise, this would make it more difficult for the peripheral countries to recover competitiveness through internal depreciation."
Additional reporting by Alice Ross in Frankfurt.