LONDON (Reuters) - Germany’s trade surplus hit a new record in 2016, with it selling a huge 252.9 billion euros more goods and services to the rest of the world than it bought in. That will be a red rag to the newly-installed Trump administration which has already accused Angela Merkel of keeping the euro artificially low to make German goods cheaper on world markets.
Berlin counters that argument by saying this simply shows that German produce is so good everybody wants some; what’s more, if anything it is a leading critic of the easy-money ECB policy which has kept the currency so low.
How this debate plays out will be seen as Germany seeks to work out some form of consensus language on currencies and trade with the US and countries including China before it hosts next month’s meeting of G20 finance chiefs.
Romania’s new government may have survived a no-confidence vote yesterday after street protests triggered by its attempt to row back on anti-graft measures, but the affair doesn’t end here.
Today we will see whether the justice minister behind the thwarted decree has to stand down or not; more generally this has emboldened opposition forces to scrutinise and hold the ruling social democrats to account.
Another poll released today shows the run-off of France’s presidential election will be between National Front leader Marine Le Pen and the independent Emmanuel Macron, with one-time front-runner, the conservative Francois Fillon, now knocked out in the first round.
While Fillon’s campaign has been seriously dented by the scandal surrounding payments made to his family out of the public purse, it is still too early to say whether Macron’s gain has been consolidated. He has still not even released his full manifesto and has yet to really extend his campaign right across France; still all to play for.
The meeting between German Chancellor Merkel and ECB chief Draghi today in Berlin comes at a particularly sensitive time for markets. Ostensibly, the meeting was called to review ‘euro zone issues’ and while there’s clearly no shortage of them, it’s not hard to see how the discussion might extend further afield too.
Markets have clearly been jarred by the upcoming French elections and the packed European political calendar ahead but also prospect of an effective ECB tapering of QE in April. Ahead of elections later in the year, German political pressure is building for the ECB to remove its super easy monetary stance as growth and inflation picks up.
The resumption of the standoff over Greece’s third bailout is another more immediate issue but, more broadly, how euro zone countries deal with US President Trump’s likely attempts to reshape international trade and global financial cooperation, not least at forums such as the G7/G20 and the Basel banking regulation groups, will also be watched closely.
Speculation about next month’s meeting of G20 finance chiefs in Baden-Baden has already started, with German officials forced to deny reports it was seeking a change of language in the communique that would urge central banks to use the current period to build up monetary buffers to guard against future downturns.
But will Trump even have a Treasury team in place for next month’s meeting? Will he pay any heed to this multilateral club? Or will he use G20/G7 to promote protectionist policies these groups were set up to counter. Trump’s meeting with Japanese PM Abe on Friday may reveal more in that regard.
Market prices were firmer early on Thursday, with China and Asia bourses higher. European debt markets stabilised on Wednesday with drop in French and Italian benchmark spreads from recent highs. European stocks are marked higher on a monster day for the current earnings season there. Euro/dollar is lower, but off yesterday’s lows. Brent crude is higher above $55.
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