Emmanuel notes in a comment on my Global Imbalances post that perhaps the EU's net external balance is the better focus than the current account of a particular EU country like Portugal. This is probably true. Moreover, once we look at the EU as a whole we see additional evidence about why Geithner's proposal misses the point.
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Saturday, October 23, 2010
Posted by Thomas Oatley at 11:34 AM . Saturday, October 23, 2010
If we net out the individual EU members to produce an overall EU current account position, we see that the EU has a current account deficit. Hmm, that piece of information doesn't really help Geithner convince Angela Merkel of the need for a smaller German surplus, now does it?
And as Will points out, the distributional consequences of adjustment create incentive for Merkel and Co. to emphasize the EU-as-a-whole where, obviously, the contribution to global balancing must come through reducing the EU current account deficit rather than producing a smaller German surplus. In fact, perhaps the EU needs a bigger German surplus in order to bring the EU as a whole into balance?