In interviews given in the run-up to this week's G-20 summit in South Korea, Germany leaders, including Chancellor Angela Merkel, are defending their country's trade surpluses and warning against currency wars. Her words are unlikely to find a warm welcome in Washington.
On the eve of Thursday's G-20 summit in South Korea, German leaders haven't held back in their irritation with current United States economic and currency policies. In an interview with the conservative daily Die Welt published on Wednesday, Chancellor Angela Merkel defended her country's export surplus and warned against distortions in currency exchange rates.
"Current account balances are also proof of achievements, and they are the result of global market processes," Merkel told the paper. The German chancellor dismissed international criticism of the country's export surplus as well. "Our export success shows how competitive German products are," she said.
In an interview with SPIEGEL earlier this week, Merkel's finance minister, Wolfgang Schäuble, had even stronger words. "The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies," Schäuble said. "The American growth model, on the other hand, is in deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, but they don't include German export surpluses."
In her Die Welt interview, the chancellor said one has to ask what structural causes have led to the macro-economic imbalances between countries. "And in that regard, both groups -- the countries with current account deficits and those with surpluses -- need to do their homework," she added.
'Distortions in Exchange Rates Could Weaken Recovery'
Merkel also warned of distortions in currency values. "It is clear to me that distortions in currency exchange rates could weaken the global recovery." In the mid-term, she said, exchange rates should reflect the fundamentals of a country's economy. "A policy that bets on keeping an artificially low exchange rate and export possibilities linked to that, in the end harms all," the chancellor said. She said that such developments should not be allowed to "lead to a situation in which a stable currency like the euro is forced to bear the brunt of the burden adjustment."
German politicians expressed anger last week after the US Federal Reserve announced it would pump $600 billion (435.2 billion) into America's banking system over the next eight months. German Economics Minister Rainer Brüderle, of the business-friendly Free Democratic party, said he was concerned the move might harm the euro-dollar exchange rate. Indeed, the euro breifly spiked against the dollar before sliding again this week to a current level of 1.37 to the dollar.
Merkel said that "appropriate" foreign-exchange policies would be discussed at the G-20 meeting on Thursday in the spirit of cooperation. Concerns have increased in recent weeks of a global "currency war" in which industrialized and major trading nations like China would weaken their currencies in order to boost their exports. The fifth summit of the G-20, made up of the world's leading industrialized economies and top developing nations, is to take place on Thursday and Friday in South Korea. The elimination of global imbalances is considered to be one of the most divisive issues going into the meeting -- one that has create tensions between all the large countries at the table. The US has proposed setting limits on countries' current account balances -- a proposal Germany has rejected.
The German economy is expected to grow by 3.5 percent this year or more and the country has a trade surplus of greater than 4 percent. That economic success has spurred resentment in countries that have had less success in pulling themselves out of the crisis, including the United States. Indeed, Washington wants to see countries with a trade surplus exceeding 4 percent of GDP subjected to heightened observation or required to change their policies, but the German government has rejected the proposal. "The proposal is not acceptable for Germany under any circumstances," German Finance Minister Wolfgang Schäuble said earlier this week. "We reject non-cooperative solutions," he said. In Germany, officials fear that Washington is pursuing protectionist policies.
dsl -- with wires
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