Germany slaps down France over trade claims

Germany hit back on Tuesday at French claims that Berlin was squeezing salaries to boost its trade surplus at the expense of eurozone partners.

• France attacks hefty German trade surplus - Business & Money (15 Mar 10)

German Economy Minister Rainer Brüderle defended his country's export-driven economic model after his French counterpart, Christine Lagarde, said Germany's approach could hurt other European economies.

"For countries which in the past lived off their entitlements and neglected their competitiveness, to point their finger at others is humanly and politically understandable, but still unfair," Brüderle told the daily Frankfurter Allgemeine Zeitung in an interview published Tuesday.

"The structural reforms needed to regain competitiveness are very painful," he added in a clear swipe at France.

Lagarde told the Financial Times that she was "not sure" the German approach – "improving competitiveness, putting very high (downward) pressure on its labour costs" – was "a sustainable model for the long term and for the whole of the group."

"Clearly we need better convergence" within the 16-nation eurozone, she said.

German Chancellor Angela Merkel's spokesman said it was "better to think about a growth strategy together rather than obliging some to hold back artificially."

He underscored the role of Germany's "Mittlestand" sector, a network of small- and medium-sized enterprises, often family owned, that are highly specialised, export-oriented and "very innovative and very quick to react."

"The question is how can others achieve that," the spokesman said.

Salary moderation has helped products made in Germany gain market share in many countries, while Germans save more and spend less, reducing imports.

The result is that while Germany was overtaken by China last year as the world's leading exporter, Berlin still benefits from a considerable trade surplus that irks some neighbours.

"If the eurozone really wants to become a functioning economy, these issues will have to be discussed and they will have to be solved at the eurozone level," ING senior economist Carsten Brzeski said.

The European Union's competition commissioner, Joaquin Almunia, said in Madrid it was important to pay attention to trade imbalances "and also to countries that have surpluses."

The daily Bild reported that lawmakers representing Germany before the European Union are worried by charges the country "achieves its growth at the expense of others."

The Economist magazine last week ran an article under the headline: "Why Germany needs to change, both for its sake and for others."

Berlin's answer? "We are not a country that sets salaries or consumption by decree."

In the 1990s, German unions accepted relatively low pay to preserve jobs as ageing German industries restructured operations to keep abreast of rivals around the world.

Less disposable income, along with higher taxes levied to help develop former communist eastern Germany and a German tendency towards savings resulted in an economy, Europe's biggest, that imported much less than it exported.

The trend that is not likely to change soon, since a pay deal negotiated by the IG Metall trade union last month for 3.5 million metallurgy workers again favoured job security over pay.

"The solution requires stronger German consumption, but that is only part of the solution: other countries have an equally strong responsibility to accelerate structural reforms and boost productivity," UniCredit chief economist Marco Annunziata.

Some economists say Berlin should cut taxes to boost consumption, but the coalition government is struggling with a growing public deficit as a result of stimulus programmes aimed at dragging Germany out of recession.