European Commission to Launch Probe into German Current Account Surplus

The European Commission announced on Wednesday its decision to investigate Germany’s trade surplus following recent criticisms regarding the nation’s current account surplus.

Germany’s current account surplus reached 7% of its gross domestic product (GDP) in 2012 and has consistently surpassed the European Commission’s threshold of 6% since 2007. This trend has led to concerns that Germany’s surplus might be hindering recovery efforts across the eurozone.

As part of this initiative, the Commission will conduct an “in-depth review” of both Germany and Luxembourg to thoroughly assess their external positions and internal developments, with the goal of determining whether either country is facing economic imbalances.

Commission President Jose Manuel Barroso indicated during a press briefing in Brussels that a high surplus does not inherently signify an imbalance. He emphasized the need for further examination to ascertain if Germany’s substantial surplus is impacting the overall functioning of the European economy.

In a recent semiannual currency report, the U.S. Treasury Department criticized Germany’s economic strategies, attributing the nation’s export-driven growth model as a contributing factor to the sluggish recovery within the eurozone and the global economy at large. While the Treasury acknowledged some recovery in German domestic demand, it noted that Germany’s economic growth remains reliant on favorable net exports, which delays the euro area’s necessary adjustments.

The Treasury highlighted that this reliance results in a deflationary bias for both the euro area and the global economy. Additionally, the International Monetary Fund (IMF) has called on Germany to increase domestic demand and reduce its export surplus to assist its euro-area neighbors in addressing their deficits.

In response to these criticisms, Germany maintains that its economic growth in the upcoming year will be propelled by domestic demand.