Germany is using the “gross undervaluation of the euro” to exploit the United States and its European partners.
The euro is “a German mark in disguise”, whose excessively low value gives Berlin an advantage over its main partners. Trump’s attack on Germany’s trade policy, long on the launch pad, has been delivered, and the declaration of “war” presented, in an interview with the Financial Times, by Peter Navarro, head of the National Trade Council, a body created by the American president to set the lines of his new economic policy.
Navarro added that it is precisely because of the enormous undervaluation of the euro, from which Germany derives continuing benefits, that the United States has decided to abandon the transatlantic treaty with the European Union for good. “A major obstacle to considering TTIP as a bilateral agreement,” Navarro told the FT, “is Germany, which continues to exploit other countries in the European Union and also the United States thanks to an ‘implicit German mark’ that is grossly undervalued”. Berlin’s structural trade imbalance with the rest of the Union and with the United States “underlines the heterogeneity within the EU. TTIP was therefore a multilateral treaty disguised as a bilateral one”.
In adviser Navarro’s words there is all the intention, already leaked, of making the Eurozone’s leading economy and Chancellor Angela Merkel the main antagonist of the new US policies. Among the new president’s first statements, moreover, particular attention had been drawn by his description of the European Union as a “vehicle” for Germany.
The chancellor’s response was swift; in September she will ask German voters for a fourth term. “We exert no influence on the European Central Bank,” Merkel said from Stockholm, where she is on a visit, “so I cannot and do not want to change the present situation. Expectations about interest rates and the resulting impact on the exchange rate are something the German government cannot influence”. It is clear, Merkel continued, that a low euro against the dollar “makes our products cheaper abroad and this tends to inflate exports”. Moreover, the chancellor pointed out, “we strive to hold our own on the global market with competitive products in trade on a level playing field with everyone else”.
Two pieces of news on Monday showed how much the attack by the new United States on Berlin and its trading power was only a matter of hours away.
The first: the German current account surplus, the Ifo institute of Munich announced, is on course to be the highest in the world, having set another record in 2016 with 297 billion dollars (against 271 in 2015), again overtaking China. At 8.6% of GDP the surplus is well above the 6% recommended by the European Commission, which accuses Berlin of being responsible for a macroeconomic imbalance that harms the economy of EU partners.
It is not only Europe or the Trump administration that is asking Germany for a “realignment”. The Obama government too, through its Treasury secretary, had in the past pointed the finger at the surplus of the world’s export giant, urging the country to adopt policies supporting domestic demand through, for example, substantial tax cuts, made possible by a public budget in surplus. But Finance Minister Wolfgang Schäuble has so far opposed, within the CDU, the planning of overly generous tax reductions.
The second significant piece of news, which arrived on Monday, concerns another overtaking: in 2016 Volkswagen overtook Toyota, for the first time in five years, in vehicle sales. Despite dieselgate.
Berlin would therefore seem unstoppable. But a spokesman for the German Ministry of Economy stressed that, although the surplus is high, the imbalance is not “excessive”. He added that Angela Merkel’s government has stimulated domestic demand by passing the minimum wage law in 2015. He specified two figures on the surplus: the one with Eurozone partners has halved in recent years, going from 4% in 2007 to 2% in 2015.
Trade imbalances, then, are shrinking within the euro area while export power bites harder on the Anglo-Saxon partners: 44% of the current German surplus is due to trade relations with the United States and Great Britain.
In 2015 the US became the leading destination market for German goods, overtaking France after forty years.
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