UPDATE 1-ECB's Weidmann says German surpluses "here to stay"

Mon Mar 17, 2014 12:16pm EDT

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By Jan Schwartz

KIEL, Germany, March 17 (Reuters) - Boosting Germany's growth potential will help with its current account but Europe's largest economy will nonetheless retain its large surpluses, European Central Bank Governing Council member Jens Weidmann said on Monday.

Foreign trade has traditionally propelled the German economy but Berlin has been sharply criticised, including by Washington, for over-reliance on exports for growth and not fostering domestic demand which would help struggling euro zone countries.

Weidmann, who also heads the German Bundesbank, said in a speech at the International Business Cycle Conference at the Kiel Institute for the World Economy that introducing more competition into Germany's services sector would be helpful.

"By removing rigidities in the services sector, Germany might not only strengthen its growth potential, but could do so in a way that is likely to have a moderating impact on the current account as well," he said.

The surpluses would nonetheless remain, Weidmann added.

"Due to its demographics and degree of economic development, Germany's role as a capital exporter is unlikely to change, which means that, to a certain extent, German surpluses are here to stay," he said.

Earlier this month the European Commission said Germany's high current account surplus was an imbalance, but not worrying enough to put Berlin on the imbalances watch-list because it is likely to diminish over time as domestic demand rises.

The government is relying on a pickup in domestic demand to help drive growth this year as consumers benefit from a robust labour market and moderate inflation while foreign trade is expected to be a drag.

Weidmann said corporate investment was likely to rise too as uncertainty around the euro zone crisis abates.

He has said before that reducing German competitiveness cannot, however, solve the euro zone's problems.

Germany's current account surplus has been in excess of 6 percent of its gross domestic product since 2007, meaning it exports far more than it imports from the rest of the world. (Writing by Michelle Martin; Editing by Stephen Brown)

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