U.S. says German export dependence hurts global economy

Reuters

By Jason Lange

WASHINGTON, Oct 30 (Reuters) - The United States reprimandedGermany on Wednesday, saying its exporting prowess was hamperingeconomic stability in Europe and hurting the global economy.

The Obama administration has long called for countries withtrade surpluses, such as Germany and China, to do more to spurdomestic demand.

But in a semiannual report to Congress on internationaleconomic policies, the criticism of Germany stood out for itsstark language and prominent placement.

"Germany's anemic pace of domestic demand growth anddependence on exports have hampered" efforts to make the eurozone economy more stable, the Treasury said in the report.

"The net result has been a deflationary bias for the euroarea, as well as for the world economy."

Deflation is a persistent drop in wages and prices that cancreate a self-feeding cycle of economic weakness.

The criticism comes at tricky juncture in relations betweenWashington and Berlin. German envoys met the White Housenational security adviser in Washington on Wednesday followingreports the United States monitored German Chancellor AngelaMerkel's cellphone.

For years, the semi-annual report has been an occasion forthe U.S. government to publicly criticize China's foreignexchange practices, but this time Germany appeared to eclipsethe Asian nation in terms of prominence.

The Treasury noted, for example, that Germany's net exportsof goods, services and capital exceeded those of China in 2012. The policy recommendations for Germany also topped the list ofactions Washington feels are necessary to make the globaleconomy more stable.

Economists say stronger domestic demand in Germany wouldsuck in more goods from countries on the southern rim of theeuro zone, which continue to suffer from an economic crisis.

As has been customary for over a decade, the Treasurystopped short of formally labeling China a currency manipulator.

It retained its description of the yuan currency as"significantly undervalued," a perennial complaint among U.S.politicians and companies because a weak yuan makes Chineseexports cheaper in the United States at the expense of Americanmanufacturers.

However, the Treasury also noted that the recentappreciation of the yuan was "good for the U.S. economy" andcalled on China to allow the currency to rise more quickly.

The Treasury also said it was closely following Japaneseeconomic policies to determine whether they are geared towardboosting domestic demand.

An aggressive monetary stimulus program by Japan's centralbank has put downward pressure on the yen this year, makingJapanese exports more competitive abroad. The U.S.administration notes that Japan had joined other nations inpledging not to target a lower exchange rate.

"It is important that these commitments be maintained," theTreasury said.

Similarly, the Obama administration said it was importantfor South Korea to refrain from a targeted exchange rate, sayingintervention by Seoul in currency markets should only be carriedout under "exceptional circumstances."

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