Germany faces pressure from EU to narrow its trade gap

Germany's huge trade surplus, a source of pride for Germans but an irritant to the rest of Europe, could undergo much tougher European Union scrutiny, officials in Berlin acknowledged.

Germany's huge trade surplus, a source of pride for Germans but an irritant to the rest of Europe, could undergo much tougher European Union scrutiny, officials in Berlin acknowledged.

Olli Rehn, the commissioner overseeing economic and monetary policy for the European Union, is expected to step up pressure on Germany when he issues growth prescriptions for the 28-country bloc. German officials acknowledged that the pressure could eventually include opening a review that at least in theory could lead to financial penalties.

Because European Union agreements require members to maintain balanced economies, Germany's trade surplus - a whopping €45.9 billion in the second quarter of this year - makes a conspicuous target for a type of review known as a macroeconomic imbalance procedure.

The German Finance Ministry said it would welcome a review of the economy but that fines were out of the question. German officials noted that the imbalance procedure was normally aimed at countries that were considered insufficiently competitive, not those that were too competitive.

"In light of the significant current account surplus, the government sees no grave weaknesses in competitiveness," the finance ministry said.

The ministry said any decision on invoking the review would be made by the European Commission, the administrative arm of the European Union, and would require several months for any formal procedure to begin. But the statement was tacit acknowledgment that a review was under consideration.

In theory, the commission could recommend fining Germany up to one-tenth of 1 per cent of its gross domestic product if the government in Berlin does not take steps to fix the problem.

But the chance that Germany will face such a fine is very low, since European Union finance ministers agreed in 2011 that large and sustained current account surpluses do not raise the same issues about the stability of the eurozone that ballooning budget deficits do and "will not lead to sanctions".

The trade surplus has become a source of friction not only with eurozone partners but also with the United States. Washington has warned that Germany's export success, with no offsetting demand for imports, has depressed demand in the eurozone and increased the risk of deflation.

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