Germany’s economic advisers reject criticism of CA surplus

BERLIN: The German government’s panel of economic advisers yesterday rejected international criticism of the country’s large current account surplus and called US President Donald Trump’s protectionist stance a threat to the global economy.

Trump’s trade adviser Peter Navarro has accused Germany of exploiting a weak euro to gain a trade advantage and called for bilateral discussions to reduce the $65 billion US trade deficit with Germany which he described as “one of the most difficult” issues. Chancellor Angela Merkel has rejected such criticism, saying her government was not in charge of the euro but the European Central Bank. During talks with Trump in Washington, Merkel also pointed to high investments by German companies in the United States.

The European Commission and the International Monetary Fund have also urged Germany to take advantage of recordlow borrowing costs and increase investment as a measure to reduce the country’s large trade and current account surpluses. In 2016, the German trade surplus hit a fresh record at 253 billion euros. The wider current account surplus, which measures the flow of goods, services and investments into and out of a country, rose to an all-time high of 266 billion euros.

“The German current account surplus is high, but this does not signal a macroeconomic imbalance,” Christoph Schmidt, head of the panel of ‘wise men’ said, adding that demands such as increasing public investment were misleading. The advisers said that the surplus was only pushed up by temporary factors such as the ECB’s loose monetary policy and the sharp drop in oil prices. The government should seek to make Germany a more attractive investment location for the private sector which would help to reduce the current account surplus, Schmidt said. “The protectionist measures demanded by President Trump pose a threat to the international trading system and a risk to the global economy,” the panel of economic advisers said. The ‘wise men’ reiterated that they viewed the European Central Bank’s monetary policy as “too expansionary” in light of the economic development in the euro zone, adding that the resulting risks for financial stability were rising further. “The ECB should therefore start winding down the bond-buying program as soon as possible,” the advisers said.

The panel of economic advisers said they expected German inflation to surpass the ECB’s price stability target of just under 2 percent for the eurozone as a whole this year by jumping to 2.2 percent from 0.5 percent in 2016. “The upswing of the German economy continues,” they said, adding growth was helped by the robust labor market, a slightly positive outlook for the global economy, higher state spending and the ECB’s “still extremely” expansionary monetary policy. — Reuters