Germany Fears Competitiveness Gap Within Euro Area

Via Guardian News and Media Limited

Reporting by Paul Taylor; editing by Stephen Nisbet

BERLIN, April 29 (Reuters) - Germany is worried at a growing gap in economic competitiveness among member states of the euro single currency area, Finance Minister Peer Steinbrueck said on Wednesday.

"The good news is that we are not losing competitiveness in Europe but we fear that other countries are losing competitiveness in Europe. We fear this because it could lead to economic divergence in Europe and within the euro zone," he told visiting European journalists. Steinbrueck was speaking on the day Berlin officially forecast that the German economy would contract by a record 6 percent this year and grow by a mere 0.5 percent in 2010.

The huge slump, by far the deepest recession in Germany's post-war history, was not surprising since the country was so dependent on exports, which accounted for more than 40 percent of gross domestic product (GDP), he said.

The minister did not name countries that were becoming less competitive but European Commission studies have highlighted how countries such as Italy and Greece have lost competitiveness in the decade since the euro was launched while German unit labour costs have remained stable due to wage restraint and welfare reforms. Steinbrueck said Berlin was making progress towards setting up a system of bad banks to remove toxic assets from banks' balance sheets and allow for losses to be covered over time by a mixture of provisions by the banks and taxpayer guarantees.

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