BRUSSELS (MNI) – There is a need for substantial adjustment of
imbalances within the Eurozone, not just in countries with large
deficits but also in those with large trade surpluses, a European
Commission report said on Wednesday.

“The need for policy action is particularly pressing in member
states which have accumulated large current account deficits and large
competitiveness losses,” the European Commission’s Quarterly Report on
the Euro Area said.

“In countries with fiscal imbalances, this adjustment should go
hand-in-hand with sizeable fiscal consolidation,” it said.

“Action is also needed in member states that have accumulated large
current account surpluses. In these countries, policies should aim to
identify and implement structural reforms that help in strengthening
domestic demand,” the report said.

The report comes after a spat between the Eurozone’s two largest
members, Germany and France, over the size of export-driven Germany’s
trade surplus and whether it should be taking action to address it.

French Finance Minister Christine Lagarde has said Germany – which
has a large current account surplus – should take measures to boost its
domestic demand because its large trade surpluses hamper the
competitiveness of other Eurozone states.

“(Could) those with surpluses do a little something? It takes two
to tango,” she told the Financial Times in an interview earlier this
month.

German officials were quick to respond, saying it isn’t Germany’s
fault if other countries couldn’t compete.

At their meeting March 15, the Eurogroup club of 16 euro-sharing
countries acknowledged the need for action in both current account
deficit and surplus countries. They said they would address the issue
“swiftly and effectively,” but didn’t set a specific timeline.

The European Commission report Wednesday called for “a coordinated
and ambitious policy response” which “would ease the necessary
adjustment processes but would also boost the euro area’s long-term
growth prospects.”

“Tackling these challenges is a central plank of the new Europe
2020 strategy for smart, sustainable and inclusive growth,” it
concluded.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnewsHe.com

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