And From Berlin Down to Beijing, Can’t You Just Hear Those Factories Hum?
According to the Financial Times, the Chinese Authorities spent their morning pushing back against the mounting US criticism of their currency policy, arguing that their huge trade surplus is not the result of their undervalued exchange rate and warning the US not to “politicise” the issue.
“The trade imbalance is not something that the exchange rate can resolve and politicising exchange-rate issues is counterproductive to global efforts in tackling the financial crisis,” said Yao Jian, spokesman for the Chinese commerce ministry at a briefing.
The Chinese rebuttal came a day after the US Congress signed a letter calling on the Obama administration to label China as a currency manipulator, an indication of the rising pressure in the US to take a tougher line with China. “The impact of China’s currency manipulation on the US economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors,” the letter said.
Curiously the Chinese statements come just a day after similar reactions have come from Germany following Christine Legarde’s attempts to mediate in the growing conflict between Europe’s centre and its periphery about how to restore growth to the Eurogroup. Responding to suggestions that Germany should do something to reduce its trade surplus, Werner Schnappauf, general-secretary of the BDI trade association, said Germany’s success at exporting was not the result of “some planned model”, but reflected “the competitiveness of German companies on global markets”.
As Eurointelligence point out, the German establishment feel threatened, and are closing ranks. This comment from Rainer Bruderle, the German economics minister, is very typical for the way Germans are reacting. According to Bruderle, the German surplus is not a problem for anybody, since it is simply a sign of success, and the foundation on which growth, employment and well-being are based.
In the words of Eurointelligence, “the whole interview shows that the minister, in line with every other German politician who is publically commenting on this issue, has no understanding of what imbalances in a monetary union imply. It also shows a misunderstanding since what Germans consider as their success is primarily the result of real revaluations elsewhere in the eurozone, which makes Germany’s good relatively cheaper. A first pre-requisite for the solution of any problem, let alone any problem as complex as imbalances, is the recognition that this is a problem in the first place.”
Of course, the fact that in the peripheral countries that very same “real revaluation” was primarily the result of having an interest rate policy over at the ECB more geared to the deflationary worries of a German society in the throes of a major restructuring than to the inflation needs of those who are now being criticised for having become totally uncompetitive (see chart below for the Spanish case).
Now it may seem platitudinous at the point, but I can’t help endorsing Gideon Rachman’s plea that what we all need to do here is calm down a bit. We are talking at each other, not talking to each other. Correcting the large current account surpluses in both the Chinese and the German case is not as easy as some would make it out to be, since in part the issue is one of demographic imbalances which may need decades to correct, and there is no point in putting people who are already in difficulty even more on the defensive. At the same time, simply to talk about fiscal irresponsibility on Europe’s periphery (which again is a gross oversimplification of the issues involved) is only going to raise the temperature without producing any useful result. If the people on the periphery feel under threat then this will make it harder, and not easier, to get those much needed changes.
My feeling is that we have really all congratulated ourselves here far too soon. The OECD economies, by and large, have been stabilised. There is no “V” shaped rebound. Prompt action by the central banks stopped a meltdown in the banking system, but they did this at the price of massively inflating sovereign debt. Now we need to find the road back to growth, and this is not going to be as easy as it first seemed. The old imbalances don’t work anymore, and we need to learn something from why they don’t. We also need to leave behind us stereotypical discourses which were always of doubtful validity, and now seem downright dangerous. People have talked for years about the dangers of a return to protectionism, what we are currently hearing isn’t quite that, but it is damn near to being the next best thing.
This post first appeared at A Fistful of Euros, where Edward Hugh also blogs.
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