Merkel warns on rise of protectionism

By Lionel Barber, Quentin Peel and Gerrit Wiesmann in Berlin

Published: November 8 2010 20:55 | Last updated: November 8 2010 20:55

The greatest danger facing the global economy is a return to trade protectionism, Angela Merkel, German chancellor, has warned ahead of this week’s meeting of global leaders in Seoul.

In an interview with the Financial Times before the G20 summit opens on Thursday, Ms Merkel suggested that China must be persuaded with “facts and benchmarks” to set a “fair exchange rate” for the renminbi, rather than be attacked for its currency policy.

Exchange rates should reflect the underlying strength of a country’s economy, she said. At the same time, she dismissed a US proposal to set specific targets for maximum levels of balance of payments’ surpluses and deficits as “too narrowly conceived”. Germany has been under attack for the size of its trade surplus.

“I don’t think much of quantified balance of payments targets,” she said, speaking in the chancellor’s office in Berlin. “It is not just a question of exchange rates, but also a question of competitiveness.” She expressed concern about new examples of non-tariff trade barriers being erected by G20 members, including in legislation in the US Congress, and “other attempts to make market access more difficult”.

Calling for a new attempt to complete the Doha development round of trade liberalisation measures in the World Trade Organisation, she added: “We have been talking about it for many years, but there is another chance in 2011 to complete it at last.

“The greatest danger that threatens us is protectionism, and we are still not taking enough steps to ensure genuinely free trade. There is something we can do that does not cost us much, and does not create any new debts, and that is to finish the Doha round. That is the priority for me.”

Ms Merkel was careful to balance her criticism of the US and China, defending the achievements of the G20 for preventing the global economic crisis turning into a prolonged downturn.

If all the member states agreed to implement the latest Basel accord on new rules for the capitalisation of banks, she said, “we will have created a genuine crisis prevention mechanism”.

She warned that more work was needed on measures to regulate banks that are “too big to fail”. “That remains an important task for 2011.”

In the longer term, she said, the G20 should be developed into a lasting institution, a job that would fall to France when it took over the presidency of the group from South Korea after the Seoul summit.

Germany is working with France to put currency co-ordination and measures to curb speculation in commodity markets at the top of the G20 agenda next year.

Ms Merkel defended her government’s plans to rein back its publicly financed economic stimulus from 2011, saying a discussion of exit strategies was necessary for all G20 members. Berlin has been criticised, especially from the US, for imposing excessive austerity measures.

She said Germany’s trade surplus, which hit a two-year high of €15.6bn ($21.7bn) in September, should not be calculated separately from the wider European trade balance. With a single market in the European Union, it was not meaningful to calculate on a country-by-country basis.

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