Barring a last minute change of heart, the European Commission will launch an investigation into whether Germany’s giant trade surplus is fuelling economic imbalances, a charge laid squarely by the U.S. Treasury but vehemently rejected by Berlin.
This complaint has long been levelled at Germany (and China) at a G20 level and now within the euro zone too. Italian Prime Minister Enrico Letta urged Berlin this week to do more to boost growth.
Stronger German demand for goods and services elsewhere in the euro zone would surely help recovery gain traction. The counter argument is that in the long-run, only by improving their own competitiveness can the likes of Spain, Italy and France hope to thrive in a globalised economy.
Berlin says it has more than halved its current account surplus with the euro zone as a share of gross domestic product since 2007. But its global current account surplus is the biggest in the world as a percentage of GDP. It totalled 6.9 percent of GDP last year, higher than the 6 percent threshold that the Commission considers excessive.
One thing is sure; German policymakers will be furious at a time when they are still trying to construct a coalition under Angela Merkel.
As we’ve reported in recent days, the signs are that the next government in Berlin is already heading away from further surrenders of sovereignty. If an in-depth review concluded that the surplus is causing imbalances to Germany’s and Europe’s economy and Germany does not take the recommended steps to fix the problem, the final result can be a fine of 0.1 percent of GDP – which would enrage more than hurt.