Tuesday, December 6, 2011

The Problems With The German Solution For Europe

This article explains why many Germans believe that austerity will help Southern Europe recover from its debt problem. The answer is simple. Germany made structural reforms ten years ago that restored its economy. They should do the same thing. The problem is that Germany's recovery was boosted by exports and a huge increase in its current account surplus. It is not possible for every country in Europe to run current account surpluses. Few of these countries have the industrial strength of Germany, and it is mathematically impossible for every country to run surpluses. Surpluses and deficits must sum to zero.

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