A US rebuke of Germany that jars

In an unusual criticism of Germany's economic path, a US Treasury report goes against decades of cooperative consultation among friendly, wealthier nations to help drive global growth.

The Monitor's View

The United States gave Germany a sharp rebuke Wednesday, claiming it is “hampering” Europe’s economic growth. The specific complaint: Germany is too geared up to produce exports. It needs to pump up consumer demand so it can buy more goods from the rest of the ailing 17-nation eurozone. On one key measure – Germany’s surplus of trade currency – the US even said the country is worse than China.

Besides the obvious dispute over whether Germany or the US is right on the economics of those charges, this unusual faultfinding in a US Treasury report is noteworthy for two reasons. One, it is very public. And two, it suggests that two of the world’s largest economies are losing the spirit of cooperation built up over decades. That often quiet cooperation was done by leaders working together to create a healthy global economy.

The world’s rapid economic growth since World War II has relied on wealthier countries sometimes seeing a larger global good by, for example, opening their domestic markets to imports from poor nations or not subsidizing certain industries. One of the more difficult sacrifices for a country has been to avoid manipulating its currency rate to favor exporters.

This new US finger-pointing is a far cry from the accommodating way that the post-1945 international financial system was set up during the long and collaborative negotiations in Bretton Woods, N.H. Even more so, it is far from the informal atmosphere of the annual economic summits that began between Germany, the US, Britain, and France in 1973 as the postwar Bretton Woods system began to unravel, especially after that year’s oil price shock.

The group of four nations, whose finance ministers met in the White House Library, was known as the “library club.” The name was an indication of the delicate and difficult decisions that each country must make to change their respective economies to create a more harmonious global economy. The close ties between leaders – out of the spotlight – helped develop trust but also empathy for each government’s choices.

The G4 then grew to G7, and then with the addition of Russia in the 1990s, to G8. The grouping expanded to the current G20 in 1999 as globalization really took off. Since 1991, trade as a portion of the world’s economy has grown from 40 percent to more than 60 percent today.

Since their beginnings, the groups’ efforts were aimed mainly at preventing financial crises, such as the 1997 Asian meltdown. But those crises also showed how interdependent and vulnerable each economy now is. And how lifting up other economies by not always protecting one’s own has long-term benefits.

At a 2000 G20 summit, then-South African Finance Minister Trevor Manuel cited the big purpose of coordinating economic policies: “We do this for ourselves, but we also need to engage on behalf of our neighbors. Because if our neighbors fall by the wayside, we are dragged down too.”

Over time, the G20 and other world economic institutions have developed a list of “best practices” in many areas. But differences remain on applying different theories of economics. The US reprimand directed at Germany reflects one of those disputes – about the effects of government stimulus. But it also represents a departure from years of gentle coaxing among trading nations.

The world’s future growth could depend on whether the collegial nature of coordinating economic policies can be sustained.