Germany’s Failure to Cut Trade Surplus Causes Global Tensions, IMF Chief Economic Says

Germany’s Failure to Cut Trade Surplus Causes Global Tensions, IMF Chief Economic Says

Germany’s failure to reduce its large trade surplus contributes to global trade tensions, according to Maurice Obstfeld, chief economist at the International Monetary Fund (IMF).

Obstfeld’s description of the German trade surplus as a factor which might undermine global financial stability comes against the backdrop of US President Donald Trump’s accusations to a similar tune targeting Germany as well as the EU.

While Trump’s critical rhetoric has subsided since the recent agreement to prevent an all-out trade war between the United States and the European Union reached by the US President and European Commission President Jean-Claude Juncker, its results have been received cautiously in Germany.

“[Countries such as Germany have shown] hesitant measures, at best, to counteract the surplus,” IMF chief economist Maurice Obstfeld said in a guest commentary for the German daily Die Welt, as cited by DW.

“The net external positions will diverge more. That increases the risk of disruption by currency or asset price adjustments in indebted countries, to the disadvantage of all,” he said.

“If there is a sudden adjustment, then both the debtor and creditor countries will suffer,” he added.

Obstfeld also demanded that Germany increase government spending, for instance by investing in infrastructure or digitalization.

That is supposed to lead German companies to invest more domestically rather than look abroad.

As far as the trade and economic policies of the United States are concerned, the IMF chief economist argued that due to the US trade deficit, Washington should reduce the federal budget deficit, encourage households to save more and gradually normalize their monetary policy.

The International Monetary Fund as well as the EU executive, the European Commission, have been urging Germany to boost domestic demand by increasing wages and investment.

Their argument in favor of those policies is that they are supposed to help reduce global economic imbalances.

US President Donald Trump frequent accusations that Germany deliberately keeps distorting its balance of trade with the United States has been countered by German Chancellor Angela Merkel by pointing out that the overall trade balance in the bilateral relationship is in America’s favor when services are counted in.

(Banner image: Video grab from YouTube)

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