German chancellor Angela Merkel’s government has hit back at a US treasury department report that criticised Germany for running an extended trade surplus.

The issue is a key one in the debate over the EU’s response to its economic crisis and whether Germany should do more to help countries such as Ireland and Spain.

The US report targeted Germany for maintaining a current-account surplus throughout the four-year-old European debt crisis and said policymakers hadn’t done enough to bolster domestic demand, delaying a resolution to the crisis.

“The criticism is not justified,” the German economy ministry said. “The current-account surpluses are a sign of the competitiveness of the German economy and global demand for quality products from Germany.”

Diplomatic fallout
The spat over economic policy coincides with the diplomatic fallout over US spying on allies and the possible tapping of Dr Merkel's mobile phone. The chancellor dispatched a team of officials to the White House to begin repairing political damage following the spy disclosures.

In the economic sphere, German officials have repeatedly fended off accusations that the country’s export-led economic growth has been generated at the expense of domestic consumption that would alleviate imbalances in the euro area.

Rebound
While the US acknowledged a rebound in domestic demand in Europe's largest economy, German growth "continues to rely on positive net exports, which continues to delay the euro area's external adjustment process".

The toll is being taken by indebted euro countries such as Ireland and Greece, which have come under “severe pressure to curb demand and compress imports in order to promote adjustment,” according to the US report.

“The net result has been a deflationary bias for the euro area, as well as for the world economy,” the Treasury said.

Dr Merkel has said that her government has done enough to spur consumption, while championing Germany’s export-heavy policy as a model for others to follow. – (Reuters)