Schäuble Defends Germany's Trade Surplus

By Tom Fairless Features Dow Jones Newswires

German Finance Minister Wolfgang Schäuble called on the world's governments to boost their competitiveness through economic reforms rather than relying on rising debt and easy money from central banks.

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Speaking Thursday in Washington, D.C., where global economic leaders are gathering for a series of semiannual meetings, Mr. Schäuble blamed the economic problems of some Eurozone countries on their failure to implement "unpleasant reforms."

"There is no lack of debt in the world, and no lack of central bank liquidity," Mr. Schäuble said.

"There is, however, a lack of productivity and competitiveness in many countries because the necessary reforms have not been carried out."

Germany has warned for years about the dangers of excessive debt levels and prolonged central-bank stimulus programs. Berlin has also pushed back against international pressure to loosen its purse strings to bolster Europe's economy.

German warnings about the policies of the European Central Bank -- which include subzero interest rates and a EUR2.3 trillion bond-purchase program -- have grown in recent months as the region's economic recovery has gathered pace.

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Still, a policy reversal from the ECB looks unlikely for now. Three top ECB officials stressed Wednesday that the central bank must hold course. Its next policy meeting is on April 26-27.

The International Monetary Fund, which is co-hosting this week's meetings in Washington, took the ECB's side on Tuesday.

The IMF argued in its latest policy outlook that the ECB should maintain its current stimulus, and even adopt new measures if the Eurozone's underlying inflation rate remains low.

Eurozone inflation was 1.5% last month, not far off the ECB's target of just below 2%. But core inflation -- which excludes volatile energy and food prices -- has been stuck below 1% for months.

Mr. Schäuble called on Eurozone countries to stick to the bloc's economic rules rather than relying on support from Frankfurt.

"The problem, as far as some parts of Europe are concerned, lies not with the rules but with the fact that the rules have not been properly implemented," he said.

"I have taken it upon myself to point this out again and again; that would be why I am probably not exactly the most popular finance minister in the Eurozone," he said.

The German finance minister also acknowledged that Europe needs to do more to ensure its own security in the future rather than relying on support from the U.S.

The Trump administration has urged Germany and other North Atlantic Treaty Organization members to step up their military spending .

"Europe must make a bigger contribution, also to the trans-Atlantic partnership," Mr. Schäuble said. "But we can only achieve this gradually, step by step, by intensifying cooperation and by working towards a European Defense Union."

Still, Mr. Schäuble warned it isn't the time for fresh moves to centralize European decision-making that would require changes to European Union treaties.

"It is not realistic to think that we can take further steps towards deepening European integration at the moment," he said.

Write to Tom Fairless at tom.fairless@wsj.com

Corrections & Amplifications

This story was corrected at 1517 GMT because it incorrectly stated in the seventh paragraph that three top ECB officials spoke Thursday instead of Wednesday.

Three top ECB officials stressed Wednesday that the central bank must hold course. "Germany's Schäuble Urges Governments to Implement Economic Reforms," at 10:42 a.m. ET, incorrectly stated they spoke Thursday. (April 20, 2017)

WASHINGTON -- German Finance Minister Wolfgang Schäuble defended the nation's vast trade surpluses to a U.S. audience on Thursday and called on world governments to stop relying on debt-fueled growth and easy money from central banks.

At two speeches in Washington where global economic leaders are gathering for a series of semiannual meetings, Mr. Schäuble blamed Germany's trade surpluses in part on the policies of the European Central Bank. He also attributed the economic problems of some eurozone countries on their failure to implement "unpleasant reforms."

"We simply have too much debt," Mr. Schäuble said. He urged governments to gradually reduce debt levels and move away from a reliance on credit-financed consumption.

"The ultraloose monetary policy in place in many regions is not helpful, " he added.

Germany has warned for years about the dangers of excessive leverage and prolonged central-bank stimulus programs. Berlin has also pushed back against international pressure to loosen its purse strings to bolster Europe's economy.

German warnings about ECB policies -- which include subzero interest rates and a EUR2.3 trillion bond-purchase program -- have grown more shrill in recent months as the region's economic recovery has gathered pace.

Mr. Schäuble tied the ECB's stimulus policies to Germany's persistent trade surpluses, which have drawn fire from the Trump administration.

The German finance minister said he had warned ECB chief Mario Draghi that the ECB's stimulus would drive up Germany's surpluses by weakening the value of the euro.

He urged the ECB to follow the Federal Reserve's example by starting to exit its easy-money ways. "We are happy to hear that this is now being debated," he said.

Still, a policy reversal from the ECB looks unlikely for now. Three top ECB officials stressed on Wednesday that the central bank must hold course. Its next policy meeting is on April 26-27.

The International Monetary Fund, which is co-hosting this week's meetings, took the ECB's side on Tuesday.

The IMF argued in its latest policy outlook that the ECB should maintain its current stimulus and even adopt new measures if the eurozone's underlying inflation rate remains low.

Eurozone inflation was 1.5% last month, not far off the ECB's target of just below 2%. But core inflation -- which excludes volatile energy and food prices -- has been stuck below 1% for months.

Mr. Schäuble called on eurozone countries to stick to the bloc's economic rules rather than relying on support from Frankfurt.

"The problem, as far as some parts of Europe are concerned, lies not with the rules but with the fact that the rules have not been properly implemented," he said.

"I have taken it upon myself to point this out again and again, that would be why I am probably not exactly the most popular finance minister in the eurozone," he said.

Mr. Schäuble also acknowledged that Europe needs to do more to ensure its own security in the future rather than relying on support from the U.S. The Trump administration has urged Germany and other North Atlantic Treaty Organization members to step up their military spending.

"Europe must make a bigger contribution, also to the trans-Atlantic partnership," Mr. Schäuble said. "But we can only achieve this gradually, step by step, by intensifying cooperation and by working towards a European Defense Union."

Write to Tom Fairless at tom.fairless@wsj.com

(END) Dow Jones Newswires

April 20, 2017 12:34 ET (16:34 GMT)