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Trade

EU Commission demands German action to balance foreign trade

The EU executive Commission has urged Germany to curb its trade surplus, identifying it as a risk to the eurozone economy. The country’s huge exports should be matched with higher domestic consumption and investment.

Germany's massive current account surplus required policy action to prevent adverse effects on the eurozone economy, the EU Commission said in released Wednesday.

The EU's executive body criticized Germany's low public sector investment and private consumption which had fuelled a dependency on external demand and exports.

The German current account surplus was a sign that domestic growth had remained subdued and that economic resources had not been allocated sufficiently, the commission report added.

Germany's export strength under fire

In 2013, Europe's largest economy ran up its biggest trade surplus ever, exporting goods and services worth 199 billion euros ($277 billion) more than it imported. The imbalance was identified by both the United States and the International Monetary Fund (IMF) as a main risk to global financial and economic stability. Economists have blamed large trade surpluses for the eurozone debt crisis because countries with trade deficits need to finance their imports with debt.

Therefore, the EU Commission called on the government to implement measures aimed at strengthening domestic demand. Berlin should invest more in human capital and promote efficiency gains in all sectors of the economy, the body recommended. Especially in the services sector a huge growth potential was waiting to be unleashed, it said.

Under EU rules, a current account surplus of more than 6 percent of a country's gross domestic product (GDP) is considered as a threat to stability. In the case of Germany, the surplus was 7 percent last year.

Although the EU Commission could impose sanctions against Germany for the violation, it is unlikely to take such action. Even more so as the government in Berlin appears willing to balance out its trade surplus. On Wednesday, an internal government paper leaked to the press acknowledges that an excessive and prolonged imbalance was dangerous to the eurozone economy.

uhe/hc (AFP, Reuters, dpa)

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