Fawlty Europe: Will the European Commission dare to utter the unmentionable to the Germans?
Many urge Germany to stimulate its economy to help its crisis-hit partners. On October 30th America’s Treasury Department criticised Germany’s export-led growth model, in unusually sharp language, as a reason for the weakness of the euro zone’s recovery. But in an open trading area the connection between one country’s surplus and another’s deficit is complex. Boosting demand in Germany may suck imports from America, China or eastern Europe, more than from the Mediterranean. Even so, say Eurocrats, that would help indirectly. Buying more imports could help arrest the rise of the euro, which is making it harder for southern countries to rebalance their economies.And yet the commission is wrong about France.
The euro zone’s toughened rules of “economic governance” are lopsided. Under the so-called macroeconomic imbalances procedure, a current-account deficit greater than 4% of GDP can trigger an alert, possibly followed by “in-depth analysis” carried out by the European Commission, policy recommendations and, ultimately, the threat of sanctions. Yet a country’s surplus must rise above 6% of GDP before Eurocrats start to take notice. Germany was let off last year because its surplus (averaged over three years) was a shade below the warning threshold and was expected to shrink. Now statisticians have revised that figure to 6.1%, and it has grown since then. It stood at 7% in 2012.
So will the EU dare to mention the surplus? The test will come later this month, when the commission issues its latest economic forecasts and launches the “European semester”, an annual cycle of economic and budgetary assessments that culminate in the spring with “country-specific recommendations”. These edicts from Brussels have already irritated France, which told the commission not to “dictate” reforms. But given France’s slow progress in pension and labour reforms, more criticism is inevitable. Now that America’s Treasury has blazed a trail, can the commission afford not to speak out if it wants to be seen as independent?