The runaway Eurozone current account surplus

Real-World Economics Review Blog

Restraining domestic demand is the policy of choice of the Eurozone. Less domestic demand leads, naturally, to less imports and an increasing surplus (or declining deficit) of the current account. Macr0 101. Which is what happened in the Eurozone. Yes, macro-economics does have some predictive power. Restraining domestic demand in Europe does via the import channel however not only lead to high unemployment and lower incomes in the Eurozone but also to lower income and less production abroad. I can’t imagine that countries like the USA, China or the UK will keep accepting this. Note: it’s not about the level of the surplus (though this is starting to become worryingly high, too, for an economy as large as the Eurozone) but about the considering the size of the Eurozone very fast increase. Imagine what whould have happened when the UK and the USA had pursued comparable policies.

currentaccount

Source: ECB

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