4 thoughts on “Restoring prosperity to the Eurozone – time for rebalancing

  1. Thanks for this excellent overview. You are absolutely right in concluding:

    “The key players need a new narrative, which takes the economics of global imbalances into account, and avoids simple appeals to cultural proclivities.”

    Paradigmatic leadership is not to be expected from Germany, but is already building, with Britain (questioning the EU, showing an alternative path to being European and a responsible nation state) and the USA (effectively questioning and hopefully breaking the neoliberal paradigm) advancing in the right direction.

    Germany is not even honouring its obligations (in terms of rebalancing) as laid down under the prevailing laws of the EU: http://quaesivi.blogspot.de/2017/01/germany-breaking-eu-rules.html

    • Thanks for your reply, and link to your post. I wasn’t aware that the EC had produced a law aiming to reduce macro imbalances. Does this include current account imbalances? It seems that it has had little impact on Germany as you say.

      • I found this link (see bottom) specifying some of the criteria for rebalancing, including

        3 year backward moving average of the current account balance as a percent of GDP, with the a threshold of +6% of GDP and – 4% of GDP;

        net international investment position as a percent of GDP, with a threshold of -35% of GDP;

        5 years percentage change of export market shares measured in values, with a threshold of -6%;

        3 years percentage change in nominal unit labour cost, with thresholds of +9% for euro-area countries and +12% for non-euro-area countries.

        3 years percentage change of the real effective exchange rates based on HICP/CPI deflators, relative to 35 other industrial countries, with thresholds of -/+5% for euro-area countries and -/+11% for non-euro-area countries;

        http://europa.eu/rapid/press-release_MEMO-11-898_en.htm

      • Interesting. Still, to really restore prosperity to eurozone, the German current account needs to move towards balance or go into deficit to give other countries a chance to rebalance without draining demand from the rest of the world. Following these criteria would seem to be insufficient.

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