Wolfgang Schäuble. Picture: REUTERS/FABRIZIO BENSCH
Wolfgang Schäuble. Picture: REUTERS/FABRIZIO BENSCH

Frankfurt — German Finance Minister Wolfgang Schäuble has blamed the European Central Bank (ECB) for an exchange rate that is "too low" for Germany, following criticism last week from US President Donald Trump’s top trade adviser.

Schäuble acknowledged in a newspaper interview that the ECB had to set monetary policy for the eurozone as a whole, but said: "It is too loose for Germany."

"The euro exchange rate is, strictly speaking, too low for the German economy’s competitive position," he told Tagesspiegel. "When ECB chief Mario Draghi embarked on the expansive monetary policy, I told him he would drive up Germany’s export surplus … I promised then not to publicly criticise this [policy] course. But then I don’t want to be criticised for the consequences of this policy."

Peter Navarro, the head of Trump’s new National Trade Council, last week told the FT that Germany was exploiting the US and its EU partners by using a "grossly undervalued" euro to create a vast trade surplus. The comments appeared to place Germany in a category of countries that the Trump administration has accused of currency manipulation for competitive advantage.

Schäuble points out that Germany was not able to set exchange rate policy and pinned responsibility for the euro’s weakness against the dollar on the ECB

Schäuble pointed out that Germany was not able to set exchange rate policy and pinned responsibility for the euro’s weakness against the dollar on the ECB. The German finance ministry was "not an ardent fan" of the ECB’s policy of quantitative easing that had helped to weaken the single currency.

According to the Ifo Institute, Germany recorded a trade surplus of nearly $300bn last year, outpacing China by more than $50bn to hold the world’s largest trade surplus. Critics in Brussels and Washington have called for Germany to reframe its fiscal policy and stimulate domestic demand to increase imports.

Last month, Trump called the EU a vehicle for Germany and undermined Nato by calling it obsolete. In his newspaper interview, Schäuble questioned why a US president would want to divide Europe given that the continent "is closer to them than anybody else in the world".

He added he did not believe Trump was seriously trying to split up Europe, but he was "testing" a lot. Schäuble's comments on monetary policy are the latest in a series of attacks on the ECB’s easy money policies.

Last year, the hawkish finance minister blamed Draghi for "50%" of the success of the populist right-wing Alternative for Germany party. Schäuble and others on the conservative wing of Chancellor Angela Merkel’s ruling CDU/CSU bloc are concerned that as well as profiting from the refugee crisis, the Eurosceptic AfD, which wants an end to the common currency bloc in its present form, is winning support from voters worried about the euro’s stability and the low interest on their savings.

Schäuble appears to be broadening a recent push to drive Merkel to the right as she prepares to run for a fourth term in elections in September. Last month, he openly attacked her refugees-welcome refugee policy saying "mistakes" were made during the peak inflow in 2015.

Draghi, meanwhile, was on Friday hailing efforts at European unification, defending the common currency and applauding some of Germany’s labour reformpolicies in a speech given in Ljubljana, Slovenia.

"There are some today who believe that Europe would be better off if we did not have the single currency and could devalue our exchange rates instead," Draghi said. "But, as we have seen, countries that have implemented reforms do not depend on a flexible exchange rate to achieve sustainable growth. And for those that have not reformed, one has to ask how beneficial a flexible exchange rate would really be. After all, if a country has low productivity growth because of deep-rooted structural problems, the exchange rate cannot be the answer."

With Stefan Wagstyl

(c) 2017 The Financial Times

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