Carnegie Endowment for International Peace
The biggest constraint to the EU’s survival is debt. Europe will not grow and unemployment will not drop until the costs of the excessive debt burdens are addressed.
European nationalists have successfully convinced the world, against all logic, that the European crisis is a conflict among nations, and not among economic sectors.
China’s disproportionate demand for iron is the result of its investment-driven growth model. In considering how Chinese adjustment will affect Australia, one must consider global savings imbalances.
The role of the U.S. dollar as the world’s global reserve currency has been regarded as a great advantage to the United States but actually it is a destabilizing burden rather than an “exorbitant privilege.”
Policies that affect the savings rate of a small country can have more-or-less predictable domestic impacts because the global economy is so large that domestic policies are not affected by external constraints. But with a large economy, the analysis changes.
If Pedro Sánchez Castejón hopes to lead Spain and his party out of its current economic crisis, he must recognize that the crisis is fundamentally a conflict between the interests of Europe’s bankers and of Europe’s workers.
The European Central Bank has managed to head off the liquidity crisis that Spain and other peripheral countries faced, but little has been done to address concerns about solvency or global imbalances.
National savings represent a lot more than the thriftiness of local households, and as such it has a lot less to do with household or cultural preferences and more so with the policies or institutions that restrain the household share of GDP.
European economic adjustment will be both economically and politically painful, but Europe's financial crises will continue to recur until real fundamental rebalancing occurs.
Europe's debt crises are likely to worsen, requiring many European countries to implement difficult long-term economic and political adjustments to recover from their fiscal woes.