Move to look into persistently high export surplus could lead to massive sanctions against Berlin

This article is more than 6 years old

This article is more than 6 years old

The European Commission has embarked on a review of Germany's persistently high export surplus in a move that could lead to massive sanctions against Berlin.

Commission president Jose Manuel Barroso said the review was routine and triggered by rules aimed at preventing member states from amassing vast funds at the expense of their neighbours.

However, German officials reacted angrily to the Commission's decision and dismissed concerns that Germany's decade-long export boom undermined the recoveries in Italy, Spain and other struggling EU nations.

Germany has operated with a current account surplus in excess of 6% of its gross domestic product (GDP) since 2007. The surplus of exports over imports from the rest of the world reached €19.7bn (£16.6bn) in 2012, which was more than 8% of last year's economic output, beating even China.

The surplus prompted criticism from the United States and the European Union that Germany should pay more attention to raising domestic demand to put growth on a sounder footing.

The EU will recommend steps to fix the problem if the review, due to be finished early next year, finds the surplus is harmful.

"A high surplus does not necessarily mean that there is an imbalance," Barroso told a news conference.

"We do need to examine this further and understand whether a high surplus in Germany is something affecting the functioning of the European economy as a whole."

The Commission is also concerned that the German boom relies on capital flight from crisis-hit countries like Portugal and Greece and the import of skilled labour from Italy and Spain.

Barroso said he recognised the surplus highlighted Germany's success in staying competitive in the world economy, which he said was good for the European Union and a model for other countries to adopt.

But he said the surplus also indicated that Germany could do more to help rebalance the EU economy through raising German domestic demand and investment, and opening up the German services sector.

The analysis falls under new European Union rules, in place from the end of 2011, that charge the 28-nation's executive arm with checking that countries do not develop economic imbalances which could become a problem if not addressed.

A current account deficit larger than 4 percent of GDP or a persistently very large surplus above 6 percent are among the warning signs in the Commission's scoreboard of around 30 economic indicators.

The in-depth review is likely to be finished in February or March next year.

German officials said around a third of Germany's surplus arose from investments in other EU countries, often in the form of new car plants or chemical factories. They also said the surplus with other EU countries had fallen in recent years and domestic demand increased on the back of wage rises that average 2.8%, compared with the UK's 0.8%.

However, Brussels is under intense pressure to prevent Berlin from capitalising on the weak state of other member states, which have failed so far to replicate labour market and welfare reforms achieved under the Gerhard Schroder chancellorship 10 years ago. In rival capital cities, Germans are accused of using export surpluses to buy up land and property to extract a rent, often repatriating the income or amassing the funds in vast retirement schemes or in further investments outside the EU.

Wolfgang Schaeuble, finance minister in the previous government, has argued strenuously that export surpluses should be praised rather criticised. Former prime minister Angela Merkel is currently negotiating to form a coalition government with her Social Democrat rivals, and is expected to announce a deal within the next few weeks.

If the new government refuses to introduce measures to further boost domestic demand it could face a fine equal to 0.1% of GDP.