Home > debt crisis, depression, The Economy > Meanwhile in Europe…(20). Current accounts. French history repeats itself (in Germany).

Meanwhile in Europe…(20). Current accounts. French history repeats itself (in Germany).

from Merijn Knibbe

Some countries in the European Union have large and persistent current account deficits. According to Hans-Werner Sinn this situation is “a balance-of-payments crisis whose solution requires real adjustment of prices and wages in the periphery countries”. He means: internal deflation, engineered by mass unemployment. However, some other countries in the European Union have large and persistent current account surpluses  (see the graph, click here for an enlarged graph).

Might it be possible that the surplus countries have to adjust too? History suggests they should. Around 1930, France wrecked the Gold Standard by hoarding gold. The frank was undervalued. French export industry thrived and the country had large and persistent surpluses on the current account. But the pound was overvalued and the UK had large and persistent deficits on the current account. The French government however did not want to revaluate and, in the end, did not even agree to lending gold to the UK anymore when the UK needed this gold to finance its large and persistent deficits. This is the flaw in the system which in 1931 led to the end of the gold standard: countries losing gold were required to carry out contractionary fiscal and monetary policies to restore balance of payments equilibrium, but countries accumulating gold did not come under equivalent pressure to impose expansionary policies. Sounds familiar. A real adjustment of prices and wages in ‘Greater Germany’ seems warranted.

Greater Greece: Bulgaria, Cyprus, Czech Republic, France, Greece, Hungary, Iceland, Estonia, Italy, Ireland, Latvia, Lithuania, Portugal, Poland, Romania, Spain, United Kingdom, Slovakia, Slovenia. Combined population about 360 million people.

Greater Germany: Austria, Belgium, Denmark, Germany, Luxembourg, the Netherlands, Sweden, Finland. Combined population about 140 million people.
Simple arithmetic shows that the deficit per head in ‘Greater Greece’ is quite a bit smaller than the ‘surplus per head’ in ‘Greater Germany.

All data: Eurostat

  1. merijnknibbe
    October 11, 2011 at 3:25 pm

    Serendipity:

    see also this article with a comparable graph (which however leaves out 2007-2011) from Kash Mansoori, published today (october 11):

    http://www.tnr.com/article/economy/95989/eurozone-crisis-debt-dont-blame-greece

    • Dave Taylor
      November 9, 2011 at 12:31 pm

      Thanks for the link, Merijn. Mansoori’s article is very though provoking.

      Seen from the perspective of real trade, the Euro has the advantage of facilitating trade by eliminating currency speculation, but as seen here from the perspective of peripheral development not being “given” but taking the form of profit-seeking private investment, clearly the case is quite different.

      That this investment should be at the whim of the computer-enhanced psychopathy of the stock markets is appalling. A central bank advised by social architects from the Eurozone countries would at least have made objective decisions (wise or unwise) without the instability generated by fear of the unknown. Much as Keynes had intended globally, of course.

  2. chicco80
    November 9, 2011 at 11:19 am

    Yes, if my understanding is correct, this deficit and surplus includes also the interest on the debt. Does it matter who owns the debt of a country? For example France has hundreds of billions of Italian debt.

  3. November 9, 2011 at 8:49 pm

    Even if the parasitic interest on the loans to individuals and nations were factored into monetary policy set by the likes of the Central Banksters using fractional reserve theory with unstable Fiat currencies, the result would still be what it is, the End Game phase of Casino Capitalism, AKA Plutonomy (or NeoMonopoly, the World Game). Right?

    Schumacher was wrong. Economics without compassion is not like sex without love, it’s like rape, torture, maiming, enslavement and ecocidal devastation for profit.

    Our problem is systemic values disorder AKA SVDS, social values deficiency syndrome. The conventional socioeconomic paradigm inherently generates & perpetuates spiritual illness, immoral relativism, and ethical dualism, i.e., cancerous corruption & psychic AIDS.

  4. December 11, 2011 at 10:50 am

    Portugal and Greece are not the problem, but the symptom.

    These huge external deficits are simply the more acute symptom of the “German exporters take it all” syndrome which plagues the entire Eurozone, with the help of imprudent financing from German banks.

    Portugal and Greece are NOT the problem, but the symptom. These huge external deficits are simply the more acute symptom of the “German exporters take it all” syndrome which plagues the entire Eurozone, with the help of imprudent financing from German banks.

    Merkel is resorting to illusionist politics, berating Germany’s trading partners downstage center to distract German taxpayer from the need to absorb the banking mistakes in the upstage corners.

    And this time they can’t call it the “soli tax”. See the blog PPP Lusofonia
    http://ppplusofonia.blogspot.com/2011/12/eurozone-crisis-procura-fundo.html

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