Remember the Obama administration, the one that set an ambitious goal in 2010 of doubling exports and in the process creating 2 million U.S. jobs? Well, it caused quite a flap recently when the Treasury Department released a report on currency manipulation and took the occasion to criticize Germany for its “anemic pace of domestic demand growth and dependence on exports” that had hampered growth in the European Union and the world economy.
In 2012, Germany’s current account balance, a measure of its trade accounts and income, was $238.5 billion. Germany had a trade balance of $204 billion. The German government was quick to defend its trade surplus, saying it reflected the German economy's competitiveness and global demand for quality products produced in Germany.
Criticism of Germany for not promoting more domestic spending is not new. In February 2012, the Organization for Economic Co-operation and Development (OECD) stated in an economic survey report:
"Reforms to foster domestic demand should focus on improving competition enhancing framework conditions for investment and innovation in Germany’s domestic sector. This includes lowering the strict regulation in some services sectors, notably professional services, and improving innovation support, for example by introducing a tax credit for R&D complementing direct R&D support. In addition to raising productivity and potential growth, such reforms would also contribute to reducing the structurally high current account surplus and thus make a contribution to reducing global imbalances in a way which benefits Germany as well as others."
In a Bloomberg article reported by Brian Parkin and Patrick Donahue, David Lipton, first deputy managing director at the International Monetary Fund, echoed the need for Germany to reduce its trade surplus.
A “significantly smaller current account would be useful,” Lipton said last night at a speech at Berlin’s American Academy. Cutting excessive deficits in the euro area “simply can’t happen unless surpluses are down as well.” [Bloomberg.com]
But Merrill Matthews, Ph.D., a resident scholar at the Institute for Policy Innovation, said Germany was not the problem, but the solution:
“Why it’s a good idea for the U.S. to try and greatly expand its exports, and a bad idea for Germany to actually do it is a mystery.
Germany has managed to make products and services that businesses and consumers in other countries want to buy, and the U.S. is criticizing the country for that success.”
Matthews also refuted the idea that Germany’s economic policies had harmed the EU:
“It was German support that kept Greece and other socialist-leaning EU governments from defaulting. It was Germany that has driven EU economic growth for the past several years. And it was Germany that forced the high-tax, big-spending EU members to adopt some fiscal restraint—restraint that the Obama administration refuses to embrace.”
