At the recent Group of 20 Finance Ministers it was almost open warfare between the US and Germany after economists in the Donald Trump administration in Washington attacked Germany’s trade policy saying the European country was deliberately surprising the euro as a way of maintaining a competitive edge for its exports.
Now a group of Germany’s top economists, the Council of Economic Experts, have hit back, effectively arguing in diplomatic terms that the US only has itself to blame as it has deliberately run a trade deficit for “several decades”.
The ongoing war of words between Germany and the US is becoming increasingly acrimonious
Jochen Andritzky, the Secretary-General of the council which is a group of five top economists and known as the group of Wise Men – although it currently features one woman, said: “Problems can arise on both sides – surpluses and deficits.
“It usually becomes a problem if the balance is tilted to one side over the long term, and the US has been running a deficit for several decades.”
Mr Andritzky also launched an attack on the US saying that such views were “totally misguided,” adding that the US had “extrarodinary privilege” of simply being able to print dollars as it was the global reserve currency, which had helped the country to consistently run a large deficit over years.
Germany had a world-record budget surplus last year of a sizeable £238 billion (€274bn) which even outstripped China’s surplus of £196n (€226bn), according to the German Institute for Economic Research (Ifo).
German Chancellor Angela Merkel has been accused of manipulating the euro
The disparity led Peter Navarro, Mr Trump’s key trade advisor, to accuse Germany of “exploiting a grossly undervalued” euro to pump up its exports, which in turn lead the US having to borrow heavily to maintain living standards.
At the G20 meeting on Saturday in Baden-Baden finance heads dropped long-standing commitments to free trade after pressure was exerted by the US Treasury Secretary Seven Mnuchin.
The Bundesbank has already stressed that Germamny’s surplus is already shrinking, down already from 8.75 percent of GDP in the first quarter of last year to 7.5 percent in the fourth quarter.
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US President Donald Trump is looking to boost US trade
The Council of Economic Experts predict that this will fall even further to 7.1 percent by 2018.
The Bundesbank said in a statement: “There is some reason to believe that Germany’s current-account surplus might have passed its zenith and will shrink markedly in the current year.”
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It continued to say that the surplus was a “result of numerous, mainly private economic decisions both domestically and overseas.”
The fall in the euro against the dollar has also helped German exports, with the euro losing around a quarter of its value in three years.