U.S. Treasury Lashes Out At Germany, Says Export Dependence Hurts Global Economy

DRAMA: Treasury Lashes Out At Germany

By Jason Lange

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

The Obama administration has long called for countries with trade surpluses, such as Germany and China, to do more to spur domestic demand.

But in a semiannual report to Congress on international economic policies, the criticism of Germany stood out for its stark language and prominent placement.

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

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

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

The criticism comes at tricky juncture in relations between Washington and Berlin. German envoys met the White House national security adviser in Washington on Wednesday following reports the United States monitored German Chancellor Angela Merkel's cellphone.

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

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

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

As has been customary for over a decade, the Treasury stopped 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 Chinese exports cheaper in the United States at the expense of American manufacturers.

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

The Treasury also said it was closely following Japanese economic policies to determine whether they are geared toward boosting domestic demand.

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

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

Similarly, the Obama administration said it was important for South Korea to refrain from a targeted exchange rate, saying intervention by Seoul in currency markets should only be carried out under "exceptional circumstances."

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