German Exports Remain Key to Economic Power, Merkel Tells Union

By Tony Czuczka

Oct. 15 (Bloomberg) -- Chancellor Angela Merkel dismissed criticism of Germany’s reliance on exports, saying that foreign markets remain the key to growth as Europe’s largest economy recovers from the worst recession since World War II.

Merkel, addressing a labor convention in her first policy speech since winning re-election on Sept. 27, indicated she’s resisting shifts in economic policy as she negotiates with the pro-business Free Democratic Party to form her next government. Party leaders are due to meet tomorrow for a three-day session to thrash out remaining differences.

“Germany’s strength lies largely in the fact that the Federal Republic is a center of industry and that it’s an export nation,” Merkel told the meeting of the IG BCE mining, chemical and energy union in Hanover yesterday. “All those who now say we’ve depended too much on exports are undermining our biggest source of prosperity and must be rebuffed.”

The chancellor also brushed off Free Democrat demands to ease German laws that restrict layoffs and to reduce the number of company board seats for unions, saying no changes are needed. Merkel said she wants to be “chancellor of all Germans,” repeating a line from her re-election campaign.

Economists including Bank of England policy maker Adam Posen have criticized Germany, the world’s top exporter, for its over-reliance on foreign sales. Germany was harder hit than other advanced economies during the recession because of its reliance on eroding global demand for exports such as Siemens AG’s engineering products and Volkswagen AG cars, critics said.

‘Exports Are Vital’

“In an ideal world, Germany would have a bigger services sector,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said today in a phone interview.

“But given the structure of the German economy it’s easier to expand the industrial sector and costs less than trying to expand services,” he said. “Exports are vital for the German economy and have got to be one of the core elements of the recovery.”

Merkel’s Christian Democratic Union has said it’s ready to offer Germans about 15 billion euros ($22.4 billion) in tax relief to spur domestic demand, while the Free Democrats are seeking as much as 35 billion euros in cuts. While Merkel didn’t address taxes in her speech, she said “it would be wrong to set a course of completely rigid savings” as the recession recedes.

Negotiators from the Christian Democrats, their CSU Bavarian sister party and the Free Democrats will resume talks on tax cuts and an overhaul of Germany’s tax system tomorrow, members of the finance working group told reporters in Berlin after failing to bridge the divide in a session lasting into the early hours of this morning.

Economic Outlook

The economic institutes that advise the government are scheduled to release latest forecasts for economic growth today, followed tomorrow by the government’s own outlook for 2009 and 2010. CDU General Secretary Ronald Pofalla said Oct. 12 that the government expects the economy to shrink by between 4.5 percent and 5.2 percent this year, less than the 6 percent forecast in April, potentially giving more scope for lowering taxes.

In her speech, Merkel urged caution on the economy, saying that even average growth of about 1 percent next year would only show that Germany is “slowly emerging from the trough.”

Merkel suggested she may seek more energy independence for Europe’s most populous nation.

“If we want to remain a center of industry, if we want to remain an export nation, it’s in our interest to produce our own energy,” she said.

Germany’s energy mix is also under debate in the coalition talks as her Christian Democrats and the Free Democrats seek to agree a formula for extending the lifespan of German nuclear- power plants. Both sides want to repeal a law passed under former Chancellor Gerhard Schroeder that closes the plants by about 2021.

Pofalla said yesterday the coalition talks may extend into next week, beyond the weekend session beginning tomorrow. Merkel has said she wants her new government to be in place by Nov. 9, the 20th anniversary of the fall of the Berlin Wall.

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