Coronavirus and Merkel's quest for legacy speed up German rebalancing

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A coronavirus-induced plunge in German exports and a fiscal U-turn by Chancellor Angela Merkel as she seeks to cement her place in history are accelerating a long demanded rebalancing of Europe's largest economy. For years, Germany's huge trade surpluses and its hesitancy to stimulate domestic
By Michael Nienaber and Rene Wagner

BERLIN (Reuters) - A coronavirus-induced plunge in German exports and a fiscal U-turn by Chancellor Angela Merkel as she seeks to cement her place in history are accelerating a long demanded rebalancing of Europe's largest economy.

For years, Germany's huge trade surpluses and its hesitancy to stimulate domestic demand with substantial infrastructure spending have frustrated international organizations and European allies who argue Berlin could do more at home to support growth elsewhere.

The trade surplus has also been used by U.S. President Donald Trump to underline his America First narrative that Germany was exploiting the United States, the world's largest economy.

But with the coronavirus pandemic disrupting trade across the globe and Merkel turning Germany's traditionally cautious fiscal policy upside down, its current account surplus - a wider measure of international flows - is shrinking fast, according to projections from its central bank and finance ministry.

There are signs that this shift could last. Merkel and Finance Minister Olaf Scholz are willing to suspend the debt brake - constitutionally enshrined rules which significantly curb German stimulus borrowing - again next year, three government officials told Reuters.

The conservative leader and the centre-left vice chancellor are also determined to strengthen the European Union at a time when its cohesion has been rocked…
Michael Nienaber and Rene Wagner
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