by A swedish kind of death
Fri Jun 3rd, 2011 at 12:58:13 PM EST
In How the Euro Crisis was resolved an idea for a multilingual LTE was formed.
I wrote:
Has the countries in the core balanced trade with each others? Otherwise, I doubt very much that it could work for the core either. Structural trade imbalances would have built up, the surplus recycled to the trade deficit countries through the finance sector and then when recession hits, it turns into depression through the budget deficit ban, the vultures start attacking the debt of the trade deficit countries as the ECB demands shock therapy and demands that the finance sector of the trade surplus countries be protected at all costs.
Methinks inhabitants in the countries in the core that has a structural trade deficit against other members of the core should be very happy that they got away with a warning thanks to the admission of the periphery.
Migeru answered:
Can we fashion that argument into an LTE to be sent to newspapers in surplus countries having a deficit within the group of surplus countries?
And I say yes, we can.
But first we should gather some data.
JakeS has some objections:
Has the countries in the core balanced trade with each others? Otherwise, I doubt very much that it could work for the core either.
It might, if they ran an overall foreign surplus. And the incentive to allow the currency to depreciate in value to protect the currency-wide foreign surplus is greater if you have fewer participants. Because fewer participants means fewer partners suckers on whom you can externalise the unemployment cost of deflation. A point that goes double if those partners are themselves high-status countries deliberately pursuing a foreign surplus.
Or, in simpler terms, the Netherlands is less likely to roll over and play dead in a Ger+Fin+BeNeLux currency union than Greece is to roll over in the €-17 currency union.
I think we can leave the political side for the moment. That a smaller currency union along the lines of EMU more quickly would reform is not the relevant part here, it is the need for reform to make it a better currency union for all.
But the factual point remains. So if we consider a core with France, Germany, BeNeLux, and Italy (or should there be another configuration?) what countries would be in trouble and do they run an overall foreign surplus?
Once we know the countries and the stats I think the actual writing will be easy.
