CMV: The EU should make member states running persistent trade surpluses within the Euro area pay a penalty

Sat Jun 16 2018 15:00:00 GMT+0000 (Coordinated Universal Time)

completed

University of York

Leverhulme Early Career Fellow

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Proposal

CMV:The EU should make member states running persistent trade surpluses within the Euro area pay a penalty

Some EU countries (Germany, the Netherlands, Belgium), export much more into other EU-states than they import.
Others (France, UK) import much more from EU member states than they export.
Trade imbalances within the EU drive unsustainable debt levels in deficit countries.
Within the Eurozone, states cannot tackle trade deficits by devaluing their currency.
Therefore, surplus and deficit countries should share the burdens of reducing trade imbalances by fiscal and structural reforms.
Yet currently there is no incentive for surplus countries to do their share, for instance by raising wages or investing in domestic infrastructure.
The EU’s extant “Macroeconomic Adjustment Procedure” has no teeth
The policy should be toughened to impose a fine on surplus countries equivalent to 3% of the value of the surplus.
At current levels of surpluses this would result in a fine of roughly 4bn EUR per year on the Netherlands and 2bn on Germany.

Background Information

Mechanisms to deal with EU member state trade surpluses within the European market have already been established
- The Macroeconomic Imbalance Procedure (MiP) was introduced in 2011 and features so-called Alert Mechanism Reports (AMRs) , which screen EU countries for potential economic imbalances needing remedy through policy action
Numerous countries have been identified to have an excessive current account surplus over the past years by AMR-reporting, including Luxembourg, the Netherlands and Germany
- However, no distinct sanctions have been applied following these conclusions
Comments on the Macroeconomic Imbalance Procedure (MIP) and the issue of trade imbalances in general by NGOs/Political Partys/EU-officials:
- “Member States are making progress in addressing their economic challenges. But this progress is uneven and in some cases must be stepped up.” - Olli Rehn, former EU Commissioner of Economic and Monetary Affairs
- “The EU Commission is using double standards. When it comes to the breaking of rules, the EU Commission treats Germany more leniently than Italy or France. While Italy is facing toughened austerity measures, the EU Commission is reluctant to start a procedure against Germany." - Sven Giegold, financial and economic policy spokesperson of Greens/EFA

Debate Summary