Complaints about Germany's huge current-account surplus are hardly unusual.But the spotlight placed on Germany by the U.S Treasury Department in its latest semiannual currency report is extaordinary, as is the charge that its policies are dragging down the euro zone and the global economy.
In fact, given rising domestic demand in Germany and the strength of the euro, the Treasury stance is particularly puzzling.
The U.S put Germany ahead of China, the traditional focus of the report due to its exchange policy, and noted pointedly that 2012 Germany's nominal current-account surplus was larger than that of China. It criticized Germany's "anemic" growth in domestic demand and dependence on exports.
Yet the report itself notes that the euro zone's recent exit from recession "was supported by domestic demand growth in Germany."
On a-year-to year basis, net exports were a slight drag on German growth in the second quarter. Indeed, the main contribution was from domestic demand, with household consumption up 1.1%. A slow shift in German consumer behavior is starting to add up: Since the first quarter of 2009, consumer spending has contributed 2.8 percentage points to gross-domestic-product growth, twice as much the four years before the great recession, Deutche Bank notes.
With negotiations on forming a coalition government in Germany focused on a minimum wage,and unions winning pay raises, consumer demand may rise further.
Within the euro zone, Germany is exporting less. The German trade surplus with the rest of the euro zone has fallen from a pre-Lehman peak of close to 5% of German GDP to 2%, Berenberg Bank notes.Current accounts in southern Europe have moved close to balance or into surplus, although this may partly be down to a cyclical collapse in imports.
Still, rising exports suggest that these countries are gaining in competitiveness. And while Germany's net exports outside the European Union have risen, the IMF expects the country's overall current-account surplus to fall to 5.7% of GDP in 2014 from 7% 2012. The eurozone crisis has undoubtedly dented global growth. And Germany's large current account surplus, recycled into southern Europe, was a contributing cause to the crisis. But so were the current account deficits being run by southern European nations, where competitiveness was in decline.
Germany's crisis response has been flawed at times, but so has that of other eurozone members and institutions. The eurozone faces huge ghallenges, with record unemployment, weak credit flows, alarmingly low inflation and fragile growth. To blame Germany for all this, is unfair. In relatively recent history, Germany has drawn criticism both for being the sick man of Europe and for being too competitive. With a rebalancing potentially getting under way, the Treasury's report looks mistimed.
Richard Barley, WSJ.
Source: WSJ
