Monday, December 26, 2011

Still a EU current account deficit problem

The EU debt problem will not go away because we still have not solved the current account deficit problem. The fiscal deficit was not a problem for many countries before the crisis. The public debt also was not a problem for many countries. 

Again, the fiscal balances and net public debt would not be good predictors of the crisis, but the current account deficits tell most of the story. Here is where the problem exists and this means that countries are dealing with a competition problem. What is missing in any discussion is what will be done to make Greece more competitive in the EU marketplace. This is not happening because real wages will have to decline and many services will have to be privatized. This is not as acceptable as the pain of dealing with budget deficits. 

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