quarta-feira, fevereiro 15, 2012

The EU COMMISSION  Report prepared in accordance with the Regulation on the prevention and correction of macro-economic imbalances issued yesterday seems to reflect a rather mercantilistic view of the Eurozone crisis.

Current Account surplus are deemed GOOD (DE 5.9%, NL 5.0%) and the corresponding CAB deficts are deemed BAD (MT Malta -5,4%, PL Poland -5.0%).

We know that net exporters/creditors hold sway over international financial matters, but it is nevertheless schocking to see this  bias enshrined in a EU document at a time when the Eurozone has gone well beyond the Limits of Divergence and is at risk of being torn apart.

This  first EU Imbalance Report focuses correctly on  the large and persistent external deficits AND surpluses, resulting from the large and persistent macroeconomic imbalances and reflecting the sustained divergence  in competitiveness, the build up of intra-Eurozone cross-border indebtedness accumulated over the past decade.

But it fails to define this divergence as a JOINT or COMMON problem and thus it misses the importance of looking for COMMON solutions, in the absence of the traditonal external adjustment mechanisms.

About half of the huge German  externl surplus relates to intra-EU trade.  Thus the external adjustment of the net importing/borrowing countries (deficits tending to zero)  will certainly require  that these intra-Eurozone CAB surpluses to converge to zero as well.

The Eurozone failed its intended convergence on the domestic budget accounts (the Maastricht criteria), but it must not fail to converge on the external accounts.  However, this will require a lot more structural reforms than estimated thus far, not just in the fragile peripheral countries but also in the dominant central economies and in the EU rules and institutions themselves.

Mariana Abrantes de Sousa
PPP Lusofonia

See also
Testing the Limits of Divergence
How is Europe NOT like America in a crisis
On mercantilism