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Germany Stands Up To U.S. In Fight Over Surplus

In a heated war of words over Germany's incredible $23 billion trade surplus with the United States, German Finance Minister Wolfgang Schauble says the U.S. has only itself to blame.

Germany and the United States are set to meet at the Group of 20 meeting of industrial and developing nations beginning Wednesday night in Seoul, where Treasury Secretary Timothy Geithner was hoping to put some kind of cap on the unfavorable-to-the-U.S. trade ratios with Germany and China.

Schauble, however, says his country will do no such thing, and blames the US for long-term economic policies that are "in deep crisis."

Schauble said in an interview with the German news magazine, Der Spiegel, "The U.S. has been living on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, but they don't include German export surpluses."

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Obama fired back during a press conference in India, according to the Wall Street Journal, saying, "We can't continue to sustain a situation in which some countries are maintaining massive [trade] surpluses, others massive deficits, and there never is the kind of adjustments with respect to currency that would lead to a more balanced growth pattern."

All this talk is likely to come to naught, however, as the U.S. has little leverage in such a shaky economy. It also does not help that the US Federal Reserve Bank flooded the market with $600 billion in new currency recently.

"I seriously doubt that it makes sense to pump unlimited amounts of money into the markets," Schauble said. "(The Feds) undermine the US's credibility when it comes to fiscal policy. It's inconsistent for the Americans to accuse the Chinese of manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money."

Schauble at no point has indicated whether the U.S.'s weak bargaining position on trade was motivation for Germany's recalcitrance, but he did say Sec. Geithner's proposal to apply some sort of cap on a surplus differential "is not acceptable for Germany under any circumstances.

"If we were to introduce such measures, we would be restricting international competition," Schauble said. "But for years we, together with the Americans, have believed that world trade needs to be opened up further. We should stick to that approach."