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Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy.</s>Merkel rejects US comments, says Germany cannot influence euro

German Chancellor Angela Merkel (left) and Swedish Prime Minister Stefan Lofven (right) are shown an industrial robot by Johan Soderstrom (centre), CEO of ABB Sweden, during a visit at the Royal Swedish Academy of Engineering Sciences in Stockholm, Sweden January 31, 2017. — Reuters picSTOCKHOLM, Jan 31 — Chancellor Angela Merkel today rejected a US trade adviser’s charge that Germany was using an “undervalued” euro to gain advantage, saying her government had always called on the European Central Bank to pursue an independent policy.

“Germany is a country that has always called for the European Central Bank to pursue an independent policy, just as the Bundesbank did that before the euro existed,” Merkel told a news conference with Swedish Prime Minister Stefan Lofven.

“Because of that we will not influence the behaviour of the ECB. And as a result, I cannot and do not want to change the situation as it is,” she added.

Peter Navarro, the head of Trump’s new National Trade Council, told the Financial Times newspaper that the euro was like an “implicit Deutsche Mark” whose low valuation gave Germany a competitive advantage over its main partners. — Reuters</s>STOCKHOLM (Reuters) - Chancellor Angela Merkel on Tuesday rejected a U.S. trade adviser's charge that Germany was using an "undervalued" euro to gain advantage, saying her government had always called on the European Central Bank to pursue an independent policy.

"Germany is a country that has always called for the European Central Bank to pursue an independent policy, just as the Bundesbank did that before the euro existed," Merkel told a news conference with Swedish Prime Minister Stefan Lofven.

"Because of that we will not influence the behavior of the ECB. And as a result, I cannot and do not want to change the situation as it is," she added.

Peter Navarro, the head of Trump's new National Trade Council, told the Financial Times newspaper that the euro was like an "implicit Deutsche Mark" whose low valuation gave Germany a competitive advantage over its main partners.</s>An adviser to President Trump accused Germany of using a "grossly undervalued" euro to hurt the U.S. economy -- and promptly drew the ire of German Chancellor Angela Merkel.

"Germany is a country that has always called for the European Central Bank to pursue an independent policy, just as the Bundesbank did before the euro existed," Merkel said Tuesday in response to Trump adviser Peter Navarro.

"We will not influence the behavior of the European Central Bank," she added.

In an interview with the Financial Times published Tuesday, Navarro said that Germany "continues to exploit other countries in the EU as well as the U.S. with an 'implicit Deutsche Mark' that is grossly undervalued."

The euro surged after the comments were published, strengthening by nearly 1% in afternoon trading.

Navarro, an economist who serves as the head of Trump's National Trade Council, is also a harsh critic of China's trade policies, which he blames for a loss of manufacturing jobs in the U.S.

Germany runs a massive trade surplus, exporting far more goods than it imports. In the first 11 months of 2016, the imbalance totaled €255 billion euros ($274 billion).

Many economists, including those at the European Central Bank, have long warned that the trade imbalance between Germany and other European countries poses a risk to the eurozone.

But they also say it's the central bank's monetary policy that has weakened the euro, not anything that Germany has done.

Related: The euro cannot survive unless Europe changes

Several European leaders have already expressed concerns about the future of the U.S.- EU relationship.

Donald Tusk, the president of the European Council, sent a letter Tuesday to EU members warning them that "worrying declarations by the new American administration all make our future highly unpredictable."

"The change in Washington puts the European Union in a difficult situation; with the new administration seeming to put into question the last 70 years of American foreign policy," Tusk said.

French President Francois Hollande has also said the Trump administration poses challenges for Europe. Merkel has said that Europe must face its challenges together.</s>LONDON (Reuters) - Donald Trump's top trade adviser accused Germany on Tuesday of using a "grossly undervalued" euro to gain a competitive advantage, drawing a rebuff from German Chancellor Angela Merkel and sending the euro to an eight-week high against the dollar.

Peter Navarro, the head of the U.S. president's new National Trade Council, told the Financial Times the euro was like an "implicit Deutsche Mark" whose low valuation gave Germany an edge over the United States and its European Union partners.

Navarro's comments are the latest from Washington that may deepen growing unease over the outlook for global trade, after Trump himself told the Wall Street Journal two weeks ago that the dollar's strength against the Chinese yuan "is killing us".

The euro rose sharply to an eight-week high against the dollar of $1.08 <EUR=>, further away from the 14-year low of $1.0339 it hit earlier this month. It had fallen almost 25 percent over the previous three years.

"Germany is a country that has always called for the European Central Bank to pursue an independent policy, just as the Bundesbank did before the euro existed," Merkel told a news conference in Stockholm with Swedish Prime Minister Stefan Lofven.

Those who argue the euro is undervalued often blame the ECB's ultra-easy monetary policy, including trillions of euros of asset purchases, aimed at stimulating inflation and growth in the euro zone. The U.S. Federal Reserve, meanwhile, has begun raising interest rates from financial crisis-era lows.

"Because of that we will not influence the behavior of the ECB. And as a result, I cannot and do not want to change the situation as it is," Merkel added.

A German finance ministry spokeswoman said it was unfair to single out Germany's current account surplus since it was only one country of 19 in the currency union, adding: "After all, no one argues about the current account status of California."

She noted that rising oil prices would mitigate the positive impact of lower currency rates, which meant the German surplus was projected to narrow this year.

Figures released on Tuesday showed the euro zone economy grew at an annualized rate of 2 percent in the fourth quarter, outstripping the U.S. economy's 1.9 percent.

Trump's proposed tax cuts, fiscal spending plans and rising U.S. interest rates had boosted the dollar globally. <.DXY>

But a strong currency threatens U.S. competitiveness and would make bringing manufacturing jobs back to the United States - a key Trump election pledge - more difficult.

"We sense the strong dollar policy is over, a thing of the past," said Neil Jones, head of hedge fund FX sales at Mizuho in London. "Recent U.S. concern over the strong dollar versus China is now feeding into the euro zone with these comments on an undervalued euro."

Navarro, a leading China critic and author of a book called "Death by China", said Germany was one of the main hurdles to a U.S.-EU trade deal and that talks on the Transatlantic Trade and Investment Partnership (TTIP) were dead, the FT reported.

"A big obstacle to viewing TTIP as a bilateral deal is Germany, which continues to exploit other countries in the EU as well as the U.S. with an 'implicit Deutsche Mark' that is grossly undervalued," the newspaper quoted Navarro as saying.

"The German structural imbalance in trade with the rest of the EU and the U.S. underscores the economic heterogeneity within the EU — ergo, this (TTIP) is a multilateral deal in bilateral dress."

Successive U.S. Treasury Secretaries since Robert Rubin in the Clinton administration have repeated his mantra, first enunciated in 1995, that a strong dollar is in the interests of the United States.

Treasury Secretary nominee Steven Mnuchin tried to maintain that tricky balance at his confirmation hearing before the Senate Finance Committee earlier this month. He said Trump's remarks referred to a short-term spike in the dollar due to market factors, not its longer-term value.

"The long-term strength over long periods of time is important" for the dollar, Mnuchin said.</s>Donald Trump’s top trade adviser has hit out at Germany and accused the country of gaining an unfair trade advantage from the “grossly undervalued” euro.

In a sign that the Trump administration is targeting currencies in its approach to trade deals, Peter Navarro, the head of Trump’s new National Trade Council, told the Financial Times (£) that the euro was like an “implicit Deutsche Mark”.

He said Germany “continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued”.

Navarro, an academic and outspoken critic of China’s negative impact on the American economy, added that Germany was one of the main obstacles to a trade deal between the US and the EU.

The comments sent the euro to an eight-week high against the dollar, and immediately drew a rebuff from German chancellor Angela Merkel. The euro’s weakness – and its move to near-parity with the dollar – has followed a period of low and even negative interest rates as well as a programme of monetary stimulus measures from the European Central Bank.

Speaking in Stockholm, Merkel said: “Germany is a country that has always called for the European Central Bank to pursue an independent policy, just as the Bundesbank did that before the euro existed.

“Because of that we will not influence the behaviour of the ECB. And as a result, I cannot and do not want to change the situation as it is.”

Many of the ECB policies – such as slashing interest rates and printing euros to buy government bonds – are unpopular in Germany, not least because they disadvantage the millions of savers in the country.

Former UBS economist George Magnus called the comments from Navarro about the euro “hogwash” because “it isn’t Germany’s currency to influence or manage”.

Michael Hewson, chief market analyst at CMC Markets, said: “Any pretence that the US would be pursuing a so-called ‘strong dollar policy’ appears to have been blown to shreds today after Peter Navarro, one of Donald Trump’s top trade advisers, took aim at Germany for implicitly targeting a lower euro in order to give itself a competitive advantage over its main trading partners, sending the US dollar sharply lower.

“While this overlooks the fact that the ECB sets monetary policy for the whole euro area, and not just Germany, this distinction isn’t likely to figure too highly with the new US administration, which seems determined to upset the status quo in any way possible.”

Vasileios Gkionakis, global head of foreign exchange strategy at UniCredit Research, said: “This is quite strong and unusual rhetoric coming from a very senior trade adviser to the US president. First, and since it comes just days following the president’s comments about the ‘too strong dollar’, it suggests that the US administration sees the exchange rate as one of the main anchoring points for the deployment of its trade policies.

“Secondly, and perhaps more importantly, it adds an additional layer of confusion and inconsistency in this twisted web of incoherent policies: a shift towards a ‘weak dollar policy’ is at odds with the imposition of tariffs (which tend to lead to exchange-rate appreciation – ignoring for the moment the possibility of retaliation).”</s>Peter Navarro, the head of President Trump’s new National Trade Council, is accusing Germany of ‘currency manipulation’ and is saying that TTIP is dead.

Navarro is being quoted by the Financial Times as calling the euro an “implicit Deutsche Mark” whose low valuation is giving Germany an unfair trade advantage against its competitors – including the US. On that basis he says that the Transatlantic Trade and Investment Partnership (“TTIP”) currently under negotiation between the US and the EU, is unrealisable.

According to the Financial Times this is what Navarro said

A big obstacle to viewing TTIP as a bilateral deal is Germany, which continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued. The German structural imbalance in trade with the rest of the EU and the US underscores the economic heterogeneity [diversity] within the EU — ergo, this is a multilateral deal in bilateral dress

These comments will fuel even more concern in Germany at the direction the Trump administration is taking.

One of the reasons for Angela Merkel’s strong political position in Germany is that the combination of Germany’s longstanding industrial strength and the euro – which trades internationally well below where a Deutsche Mark would trade – has enabled Germany to export its way out of its economic problems. The result is that Germany has not experienced a serious recession since Merkel became Chancellor, even during the crisis period of the world financial crisis in 2008.

Should this combination of German industrial strength and the (relatively) weak euro ever be threatened Germany might face a serious recession, in which case the German economy might take Merkel down with it.

Beyond such political considerations, there is also of course the effect of a serious recession not just on German households – who have been experiencing a stagnation in their real wages for some time – but on Europe as a whole.

In light of all this it is not surprising if Donald Tusk, the President of the European Council who is known to be close to the German government, is sounding the alarm, and is talking of Donald Tusk as a threat to Europe.</s>Peter Navarro, Donald Trump's chief trade adviser, saysPeter Navarro, the head of President Trump's new National Trade Council, isNavarro is being quoted by the Financial Times as calling the euro an "implicit Deutsche Mark" whoseis giving Germany anagainst its competitors - including the US. On that basis he says that the Transatlantic Trade and Investment PartnershipAccording to the Financial Times this is what Navarro said:These comments will fuel even more concern in Germany at the direction the Trump administration is taking.One of the reasons foris that the combination of Germany's longstanding industrial strength and the euro - which trades internationally well below where a Deutsche Mark would trade -The result is that Germany has not experienced a serious recession since Merkel became Chancellor, even during the crisis period of the world financial crisis in 2008.Should this combination of German industrial strength and the (relatively) weak euro ever be threatenedin which case the German economy might take Merkel down with it.Beyond such political considerations, there is also of course the effect ofnot just on German households - who have been experiencing a stagnation in their real wages for some time - butIn light of all this it is not surprising if Donald Tusk, the President of the European Council who is known to be close to the German government, is sounding the alarm, and is talking of Donald Tusk [Trump] as a threat to Europe</s>Peter Navarro, the head of the US’s National Trade Council, has accused Germany of currency manipulation. According to the Financial Times, Navarro claimed that Germany uses a 'grossly undervalued' euro to 'exploit' its trading partners. This is a serious charge. Artificially depressing the value of a currency to benefit exporters at the expense of importers is widely regarded as trade cheating.

Unsurprisingly, Germany hit back. Rejecting Navarro’s accusation of currency manipulation, Chancellor Angela Merkel said that the Euro exchange rate was the province of the central bank, and Germany neither could nor would influence it. 'We strive to trade on the global market with competitive products in fair trade with all others,' she said.

Sadly, her comments are wide of the mark. Navarro is not saying that Germany directly influences the Euro’s exchange rate or the ECB’s monetary policy. In fact, he is not really criticizing Germany at all. He is criticizing the construction of the Eurozone.

Since Eurozone countries share the same currency, imbalances between them cannot be absorbed by exchange rate changes. In other currency unions, such as that in the United States, federal tax and spending programs smooth out inequalities between the states: weaker states are effectively supported by transfers from stronger ones. But the Eurozone does not have a federal government, and its fiscal transfers are rudimentary at best. Weaker Eurozone countries do not receive much in the way of support from stronger ones – in fact the very idea of fiscal transfer is at present anathema to Germany’s voters.

Thus, the only mechanism for correcting trade imbalances between the member states is 'internal devaluation' – real wage cuts to force down unit labour costs and render exports more competitive. This is painful, and when a lot of countries are trying to do this all at once, it is economically destructive. The Eurozone has for some years now been locked into a low-growth, low-inflation, high-unemployment equilibrium as countries attempt to restore competitiveness by forcing down real wages.

The Eurozone’s incomplete structure explains the persistent trade imbalances between Eurozone countries. But it does not really explain Germany’s trade surplus with the US. After all, the Euro floats freely against the dollar.

Navarro ‘s argument is that the Euro’s exchange rate is dragged down by the weaker countries in the bloc. This is from a paper he wrote with Wilbur Ross last September, long before the Presidential election:

While the euro freely floats in international currency markets, this system deflates the German currency from where it would be if the German Deutschmark were still in existence. In effect, the weakness of the southern European economies in the European Monetary Union holds the euro at a lower exchange rate than the Deutschmark would have as a freestanding currency. This is a major reason why the US has a large trade in goods deficit with Germany – $75 billion in 2015 – even though German wages are relatively high.</s>One of President Donald Trump’s trade advisors has accused Germany of manipulating currencies, saying that Berlin is using a weak euro to exploit the US and its European Union partners.

During his campaign, Mr Trump declared he would label China a currency manipulator on “day one”, but it appears his administration has now turned its gaze to Germany.

Speaking to the Financial Times, Peter Navarro, the director of Mr Trump's new National Trade Council, said the euro was like an “implicit Deutsche Mark” and that its low valuation relative to other currencies gives Germany a major advantage over its main trading partners.

His comments suggest the new administration is focusing on currencies as part of its approach on trade relation.

Mr Navarro also said that Germany represented one of the main obstacles to a US trade deal with the EU and said that talks around a US-EU trade deal, known as the Transatlantic Trade and Investment Partnership, or TTIP, would not happen.

He told the FT: “A big obstacle to viewing TTIP as a bilateral deal is Germany, which continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued.”

“The German structural imbalance in trade with the rest of the EU and the US underscores the economic heterogeneity [diversity] within the EU — ergo, this is a multilateral deal in bilateral dress,” he said.

Chancellor Angela Merkel rejected the criticism saying the saying her government had always called on the European Central Bank to pursue an independent policy.

"Germany is a country that has always called for the European Central Bank to pursue an independent policy, just as the Bundesbank did that before the euro existed," she told a news conference with Swedish Prime Minister Stefan Lofven.

The euro rose against the dollar on the news, as investors anticipated action from the White House over the comments. It reached a five-day high of $1.0764 and knocked the dollar index down 0.4 per cent to below 100 for the first time in five days, according to Reuters.

The euro has also gained 0.6 per cent against the pound to 86.1p, meaning one pound is worth €1.1608.
White House National Trade Council director Peter Navarro says Germany exploits other countries with a "grossly undervalued" euro. German Chancellor Angela Merkel rejects the allegation.