German exports under fire

Anyone who criticizes Europe's champion exporter Germany can expect a robust reaction. EU Economic Commissioner Olli Rehn must have been aware of that, but he still seemed surprised at the media storm, even though, as he pointed out in Brussels on Wednesday (13.11.2013), the Commission's report on economic risks in Europe has not even been formally agreed yet.

Germany has had a trade surplus for years - last year it exported 190 billion euros ($256 billion) worth of goods and services more than it imported. Rehn said that the EU Commission considers that a sign of a structural weakness, an imbalance that needs to be looked at.

'It's not ridiculous'

That really annoys Heribert Reul, a German Christian Democrat member of the European Parliament. "German export success is based on competitive products," he says. "Putting the brakes on the European locomotive would throw the whole of Europe backwards."

Editorials and business representatives in Germany have been saying the same thing. But, facing the accusation that it's a joke for the European Commission to be worrying about the German trade surplus when there are bigger problems in other EU states, Commission President Jose Manuel Barroso seemed slightly insulted: "I think that fulfilling our duties as the European Commission is not ridiculous," he said. "It's a precondition for serious governance in the eurozone and in the European Union."

But the Commission is not alone: the US government and politicians from France, Italy and other crisis countries have been criticizing the German trade balance - they say the surplus comes at the expense of the poorer EU countries.

'Europe needs more Germanys'

Barroso said several times during his press conference that it wasn't a matter of putting the brakes on Germany or even of punishing it - the Commission was merely looking into economic developments, as it is required to do by EU treaties. And it's not just Germany that was affected: 15 other states were also under investigation.

"This should not be perceived as Europe being in disagreement with Germany's competitiveness," said Barroso, trying to calm the waters. "On the contrary, it's very good for Germany and certainly for Europe that Germany remains such a competitive country with such export-oriented growth." And he added that the crisis countries could learn from Germany: "We would like to have more Germanys in Europe."

The results of the investigation will only be available next spring, and it's unclear whether they will lead to any practical consequences or new policies. Rehn pointed out that the European Council, made up of the heads of government - therefore including Chancellor Angela Merkel - had called for stimulation of German domestic demand as early as this summer.

"Germans themselves debate whether they invest enough in their own country," said Rehn. "In May we already pointed out some areas where Germany should take a look at the structural impediments to strengthening domestic demand, reforms in the service sector being one of these areas."

The Commission says that too much capital is leaving Germany - Rehn argues that it would be better for the German economy and the domestic market if that money were invested in the country itself.

Rich north, poor south

The Commission was otherwise generous in its score for Germany in its report, but it had tougher criticisms for others. France, Italy, and Hungary had already been urged to carry out structural reforms - now the Commission intends to draw up a new report to determine whether they have done so.

Rehn said that Spain, Slovenia, Greece, and Cyprus were also told that they have to do more to increase competitiveness. But the EU economy as a whole is apparently on the road to recovery. Budget deficits are slowly going down, which could slow down austerity policy across Europe.

Employment Commissioner Laszlo Andor was less optimistic. The unemployment figures in many countries were still far too high. People were at greater risk of sliding into poverty, and the gap between rich and poor countries in Europe was increasing.

"Since 2008, there's a persistent and growing divergence in the EU between the south and the north," he said. "Or to be more accurate, between central and peripheral countries. This divergence is clearly visible in the rates of unemployment and youth unemployment."

The reports have been made in accordance with new rules put in place after the financial crisis, which require the Commission to check that countries do not develop dangerous economic imbalances.

"Today, in the European Union, specifically in the euro area, economic policy is no longer a matter of national responsibility only; it's also a matter of European concern," said Barroso. On Friday, the EU will for the first time consider national budgets for next year and issue their view on deficits and reforms. All the states have to submit their budgets for examination.