German focus ‘will shift to domestic market’

German focus ‘will shift to domestic market’

http://www.ft.com/cms/s/0/1a10d038-35fc-11df-aa43-00144feabdc0.html

By Ralph Atkins in Frankfurt
Published: March 22 2010 23:30 | Last updated: March 22 2010 23:30
Germany is unlikely to repeat its past export-led success and will have to focus more on the domestic market, its central bank president argued.

In the latest attempt to counter criticism of the country’s lopsided growth model, Axel Weber, Bundesbank president, argued that prior to 2008 German exports had been boosted “by strong, but ultimately unsustainable, global economic growth”.

In a future world environment “characterised by a less steep but hopefully healthier expansion, German enterprises will naturally have to focus more on the domestic market than before”, he said in a speech in Copenhagen.

His comments followed criticism last week by Christine Lagarde, France’s finance minister, that countries running large trade surpluses such as Germany were not doing enough to support growth across Europe. Her comments have riled German politicians, who have also appeared isolated within the 16-country eurozone over their reluctance to back financial aid for Greece.

German exports allowed the country to exit recession last year in advance of other large industrialised economies, with its companies reaping the benefits of years of wage moderation and structural reforms before the global financial crisis.

Mr Weber said policymakers would be “ill-advised” to conclude from Germany’s past performance that there was “the need for actively propping up domestic demand, for example via encouraging higher negotiated wages”. In fact Germany had served “as an important buffer for world demand at the height of the financial crisis via its still robust private consumption as well as large fiscal stimulus packages”.

The Bundesbank president added that attempts by politicians to co-ordinate an economic adjustment within Europe would be “neither necessary nor helpful”.

His case received backing from Jean-Claude Trichet, European Central Bank president, who told the European parliament in Brussels that there was no case for criticising countries running trade surpluses. The ECB president added the eurozone overall was in balance and had not contributed to “a disequilibrium at the global level”.