Germany Defends Surplus, Urges ECB to Tighten Policy

Germany has prepared a robust defense of its current account surplus in a position paper drawn up ahead of international finance talks in Washington later this week, when it expects to face US pressure to reduce the surplus.

In the eight-page position paper, the German finance and economy ministries argue that the current account surplus, which ran at 8.3% of national economic output last year, is the result of market-based corporate decisions, Reuters reported.

"Germany applies no protectionist instruments," the ministries wrote in the paper, in which they added that divergent US and eurozone monetary policies have exacerbated trade imbalances.

"The economic growth in the eurozone and inflation developments could encourage the ECB to begin a normalization of monetary policy," the ministries said in the paper, a copy of which was obtained by Reuters.

"A stronger euro would automatically reduce the trade surplus."

The German government believes an interest rate increase by the European Central Bank would help to reduce Germany's often-criticized export surplus, the Funke Mediengruppe newspaper chain quoted the ministries paper as saying.

Finance Minister Wolfgang Schaeuble plans to present the paper at the IMF spring meeting. Schaeuble is a longtime critic of the ECB's current ultra-low interest rate policy.

The German government paper reiterated Berlin's view that the trade surplus was mainly due to the quality of its products and the decisions of private consumers and companies. It also noted that Germany had no influence on the monetary policy of the ECB, and that trade policy was decided by the EU.

Officials from the Group of 20 major economies will meet on the sidelines of the biannual conference of the International Monetary Fund and the World Bank in Washington, which runs from Thursday until Sunday.

Foreign Investments

Germany is becoming increasingly attractive to foreign investors, a fresh study by a leading business consultancy has shown. The authors say the country stands to profit from the UK's exit from the European Union.

Renowned consultancy A.T. Kearney on Wednesday published its 2017 Foreign Direct Investment Confidence Index, looking once again at changes in investors' perception of the business climate in specific countries and regions, DW reported.

The authors of the study said they were surprised by this year's results, pointing out that a year ago investors were concerned about the rise of populist policies in the Brexit referendum vote and the US presidential elections.

"And yet this year, despite Brexit and the equally unexpected US election outcome, the US maintains its No.1 rank on the index, and the United Kingdom gains one spot to rank fourth," A.T. Kearney's Paul Laudicina said on the consultancy's website.

The study said the discrepancy could best be explained by the fact that the US and UK markets were both large and open economies with relatively efficient regulations, transparent tax rates and strong technological capabilities. It added investors had pointed to these characteristics as the primary factors they considered when determining where to invest.

There's also the perception that both Brexit and US president will be good for business at least in the short term. This is based on London's prospect of having to deal with fewer cumbersome EU-mandated regulations and a more rational immigration policy, once it's left the EU.

The study remarks that Trump for his part has promised to lower corporate tax rates and invest heavily in US infrastructure.

This year's index provides some good news for Germany as it rises to second place in the table behind the US, marking its highest ranking in the nearly two-decade long history of the FDI Confidence Index.

A.T. Kearney says the improvement likely reflects the country's business-friendly regulatory environment and its robust labor market. Many investors expect Germany to benefit from the fallout from Brexit.

The number of European markets on the index fell for the second year in a row to 11 countries in 2017, signaling a downward trend in investor interest in Europe as a region.