Jens Weidmann backs critics of Germany’s trade surplus

Jens Weidmann, the head of the Bundesbank, has said criticism of Germany’s massive current account surplus is “justified” and suggested that the tax burden on German companies was too high.

Mr Weidmann, a leading candidate to become the next president of the European Central Bank, made the comments in a speech at a banking congress in Hamburg on Thursday, in what some saw as an attempt to soften his image as the race to succeed Mario Draghi intensifies.

Germany’s balance of trade between exports and imports amounted to 7.25 per cent of gross domestic product last year, way above the European Commission’s recommended upper level of 6 per cent. It has frequently been criticised by US president Donald Trump, who has also repeatedly attacked Berlin for its failure to fulfil to spend 2 per cent of GDP on defence, as it committed to doing in 2014.

Brussels said in 2017 that the exporting surplus was “not healthy” for Germany and “creates significant economic and political distortion for the whole of the eurozone”.

“The question as to whether such a balance is sustainable in the long-term is therefore justified,” Mr Weidmann said on Thursday. 

The Bundesbank head said a major factor in the surplus was rising corporate net saving, the causes for which were “not completely clear”. A Bundesbank study has found that a “smaller share of profits” is being distributed to the shareholders of German companies, he said, possibly as a way to reduce their high debt burden.

Economists have frequently blamed German companies that invest too little and save too much as the chief culprit behind the large external surplus.

Authorities should also ensure that Germany’s corporate tax burden did not become “too high”, Mr Weidmann said, adding that the country’s relative attractiveness as a place to do business had “deteriorated” since Mr Trump’s sweeping corporate tax reform and tax cuts carried out by “several of our European neighbours”.

The comment echoed calls from the business-friendly wing of Angela Merkel’s Christian Democratic Union party, which has long demanded tax cuts for German companies. Finance minister Olaf Scholz, a Social Democrat, has so far resisted the calls.

The hawkish Mr Weidmann is a member of the ECB’s governing council but has been a strong critic of the expansionary monetary policy pursued under bank chief Mario Draghi. He was the only council member to reject Mr Draghi’s “whatever it takes” plan to save the euro, and has yet to change his mind, a stance that has undermined his appeal as a possible ECB presidency candidate among some other European countries.

However his position has won widespread support in Germany. In 2016, then-finance minister Wolfgang Schäuble pinned the blame for the rise of the rightwing Alternative for Germany on Mr Draghi’s easy money policies. He said there was a “growing understanding” that “excessive liquidity has become more a cause than a solution to the problem”.

And there are signs that his ECB candidacy chances may be growing. Jean-Claude Juncker, the European Commission president, said this month that he “would not mind” a German such as Mr Weidmann becoming ECB chief, describing him as a “convinced European and an experienced central banker — and therefore suitable”.

Speaking on Thursday, Mr Weidmann said he could “well understand” German savers’ anger over low interest rates. However, he has also defended the ECB’s unorthodox policies. 

“Without the special monetary measures, economic growth would have been weaker, employment would have risen more slowly and unemployment would have fallen more timidly,” he said.

There was little evidence that the measures had increased social inequality, he added.

However in a low interest rate environment, financial market participants were more likely to “take on higher risks in the search for yield”, he said. That could in time pose “risks to financial stability”.

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