Germany's Problematic Trade Surplus

Although the European Commission, after reviewing the economic developments in 16 EU countries, will likely urge Germany to take steps to reduce its trade surplus, it lacks the political will and tools to pressure Berlin into making changes in the medium term. However, fear of protectionism or the dissolution of the eurozone means that Berlin will likely try to curb its trade surplus eventually, albeit with limited success.

The commission announced Nov. 13 that it will review Germany's external trade position. Germany has been increasingly criticized by Europe and by the United States over its strong trade surplus. Germany is accused of undermining exporters in other countries and not consuming enough domestically to help troubled eurozone countries. But there are few measures to strengthen exporters in struggling countries, and it is doubtful whether a weakening of Germany's exporters and stronger domestic demand would have the desired results for exporters elsewhere, particularly in southern Europe. Even if the union's investigation does not have immediate consequences, it is significant because it focuses on Germany's economic model, which is based on a strong exports sector.