Germany, IMF at Loggerheads on Surplus

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Picture source: Reuters

Germany and the International Monetary Fund, or IMF, do not appear any closer to reaching an understanding in their longing-running disagreement over monetary policy and Germany’s large trade surplus.

Finance Minister Wolfgang Schäuble, in Washington on Thursday to attend the IMF’s spring meeting, simply passed the buck and pointed the finger at the European Central Bank. The ECB’s loose monetary policy, buying up trillions in bonds and keeping interest rates at zero, has inflated Germany’s trade surplus, according to Mr. Schäuble. The finance minister added that he was skeptical of the ECB’s policy from day one.

The Washington-based IMF respectfully disagrees. Tobias Adrian, the IMF’s financial counsellor and head of its capital markets research division, told Handelsblatt in an interview that Germany was thinking about its economy in isolation, while the fund was obligated to take a more global approach.

Mr. Adrian acknowledged that Germany has taken steps to address international concerns, but he said Berlin could spend more on areas such as education and basic research.

Mr. Adrian, the highest-ranking German national at the IMF, said the fund still believes that the ECB’s loose monetary policy is the right way to kick start the 19-nation euro zone, which has slowly started to emerge from its long crisis. The Frankfurt-based central bank has to make policy for euro zone as a whole, he said. This may lead to decisions that are less appropriate for individual countries such as Germany, which has long butted heads with the ECB.

Even in Germany, inflation remains relatively low, Mr. Adrian noted. While there was an oil-fuelled uptick in February, Europe’s largest economy saw its annual inflation rate slow to 1.5 percent in March, well below the ECB’s goal of near 2 percent.

Germany faces mounting international pressure to act more decisively to reign in its surplus, which grew by $297 billion in 2016, surpassing China to become the world leader. The Trump administration has accused Berlin of using an undervalued euro to exploit trade partners such as the United States and even accused it of currency manipulation, something Berlin has sharply rejected. Mr. Schäuble even brought with him to Washington a long explainer for his US counterparts on why Germany’s surplus is justified.

The IMF has been more diplomatic in its criticism. Fund chief Christine Lagarde said earlier in April that excessive surpluses need to be rebalanced and called on Germany to spend more on investments. Mr. Adrian acknowledged that Germany has taken steps to address international concerns, but he said Berlin could spend more on areas such as education and basic research.

In some quarters in Germany, there’s some recognition that the critics have a point. Marcel Fratzscher, head of the German Institute for Economic Research, told Handelsblatt that Germany’s surplus really is too high. But Mr. Fratzscher said the imbalance has nothing to due with currency manipulation, as alleged by the Trump administration. Rather, Germany’s imports are low because it’s not investing enough, he said.

Germany, however, is not being singled about by the IMF for criticism. The fund has also criticized the Trump administration’s protectionist rhetoric.

International trade is a motor of growth, Mr. Adrian said, and protectionist measures would slow the economy and threaten financial stability. The world needs more cooperation not less, he said.

Moritz Koch has been Handelsblatt’s Washington correspondent since 2013. Spencer Kimball is an editor with Handelsblatt Global in Chicago. To contact the authors:,

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