As the charts show, just because CAB-Current Account Balance deficits are financiable by borrowing from CAB surplus countries, in the apparently liquid international financial markets, that doesn't mean they are sustainable forever.
Eventually, debt accumulatiton has to be reversed, the point is to do it less painfully.
That's what the price signals of overvalued and undervalued exchange rates were meant to warn about and to correct.
Capping budget deficits is not effective, it just leads to creative budget accounting, as we've seen with the gaming of the Maastricht criteria.
Capping official budget deficits, which reflect internal imbalances, is proves worse than useless if current account external imbalances are allowed to balloon on the back of overly easy cross-border credit and hot money capital flows.
But CAB surplus countries always try to avoid sharing the burden of adjustments by accepting restraints on their profitable export machines. They just want someone to do the lending and take the credit risk.
Even now, analysts can be heard saying that the CAB surplus countries are doing great, that all the debt problems are concentrated in the CAB deficits countries.
As if trade see-saw was one-ended.
As CL would say, "plus ça change..."
Pressure on CAB surplus countries ; the elephant in world trade system;
Jornal de Negócios