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LTE draft: the periphery protects the weaker parts of the core

by A swedish kind of death Fri Jun 3rd, 2011 at 12:58:13 PM EST

In How the Euro Crisis was resolved an idea for a multilingual LTE was formed.

I wrote:

Has the countries in the core balanced trade with each others? Otherwise, I doubt very much that it could work for the core either.

Structural trade imbalances would have built up, the surplus recycled to the trade deficit countries through the finance sector and then when recession hits, it turns into depression through the budget deficit ban, the vultures start attacking the debt of the trade deficit countries as the ECB demands shock therapy and demands that the finance sector of the trade surplus countries be protected at all costs.

Methinks inhabitants in the countries in the core that has a structural trade deficit against other members of the core should be very happy that they got away with a warning thanks to the admission of the periphery.

Migeru answered:

Can we fashion that argument into an LTE to be sent to newspapers in surplus countries having a deficit within the group of surplus countries?

And I say yes, we can.


But first we should gather some data.

JakeS has some objections:

Has the countries in the core balanced trade with each others? Otherwise, I doubt very much that it could work for the core either.

It might, if they ran an overall foreign surplus. And the incentive to allow the currency to depreciate in value to protect the currency-wide foreign surplus is greater if you have fewer participants. Because fewer participants means fewer partners suckers on whom you can externalise the unemployment cost of deflation. A point that goes double if those partners are themselves high-status countries deliberately pursuing a foreign surplus.

Or, in simpler terms, the Netherlands is less likely to roll over and play dead in a Ger+Fin+BeNeLux currency union than Greece is to roll over in the €-17 currency union.

I think we can leave the political side for the moment. That a smaller currency union along the lines of EMU more quickly would reform is not the relevant part here, it is the need for reform to make it a better currency union for all.

But the factual point remains. So if we consider a core with France, Germany, BeNeLux, and Italy (or should there be another configuration?) what countries would be in trouble and do they run an overall foreign surplus?

Once we know the countries and the stats I think the actual writing will be easy.

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Gotta deal with meatspace things now, but wanted to get a thread up to hash it out. I am not so sure how to find the data myself.

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by A swedish kind of death on Fri Jun 3rd, 2011 at 01:00:53 PM EST
But the factual point remains. So if we consider a core with France, Germany, BeNeLux, and Italy (or should there be another configuration?) what countries would be in trouble and do they run an overall foreign surplus?

I'm thinking we could include all EU countries individually running a net surplus with the rest of the Eurozone. So, the first piece of data that is needed is the trade balance and current account balance of all EU countries.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Fri Jun 3rd, 2011 at 02:20:14 PM EST
All EU countries? Is it not enough with the Eurozone countries?

Anyway, I think CIA has what we want.

Like export statistics

This entry provides the total US dollar amount of merchandise exports on an f.o.b. (free on board) basis. These figures are calculated on an exchange rate basis, i.e., not in purchasing power parity (PPP) terms.

In the country listings both imports and exports are broken down on major trade partners so that we can see that France imports for about 110 billion dollars form Germany and exports for about 80 billion dollars to Germany.

Also current account balance

This entry records a country's net trade in goods and services, plus net earnings from rents, interest, profits, and dividends, and net transfer payments (such as pension funds and worker remittances) to and from the rest of the world during the period specified. These figures are calculated on an exchange rate basis, i.e., not in purchasing power parity (PPP) terms.

So that we can see that France 2010 with 53 billion dollars in deficit was on place 188 out of 191 countries data was available for. Number 189 is also EU: Italy. And 190 is Spain.

(USA is of course 191.)

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by A swedish kind of death on Fri Jun 3rd, 2011 at 04:03:22 PM EST
[ Parent ]
  Do we need more "clout"?  Where could we look for it?  Some thoughts...

   There's the "what" of the ML-LTE (which I leave aside here for the moment) and then, in addition, we might give some thought to the "how"--going beyond just the diffusion of the LTE in prominent places.

   For example, let's consider the target audience of the appeal.

   We're not, of course, expecting to rehabilitate the very corporate interests which are quite happy to eviscerate Greece and other recalcitrant people.  

   Instead, we have to mobilize a cadre of influential people who, so far, though susceptible to a case such as DoDo describes here (http://www.eurotrib.com/story/2011/6/3/185758/3922#4), haven't so far openly become partisans for the anti-massacre (a forced starvation-diet isn't "austerity," it's murder) case.

    Should there be some thought given to trying to "bring in outside 'help'" in this effort?  I've given some thought to that.

     Besides ET's "own" Jake S and others here, there are a number of very well informed people outside ET whose work has made them expert in the "who", "what" and "how" of the forces the so-called "austerity" view.

     They include some of the authors I've recently recommended,

    Janine R. Wedel, (Washington, D.C.) at George Mason University i Washington, D.C. would recognize immediately the point and value of such an effort as this LTE and could offer helpful suggestions if she were to have the time.  homepage: http://janinewedel.info/

   -----------------

   Georges Corm (Beirut) could be receptive for the same reasons.  Our views are the expression of the case he has carefully presented.  homepage: http://www.georgescorm.com/consultancy/index.php?lang=en  /  e-mail: gecorm@inco.com.lb

   -----------------

   Stephen F. Cohen , (New York), Professor of Russian and Slavic Studies, History; New York University.  http://as.nyu.edu/object/stephenfcohen.html ;  e-mail: sfc1@nyu.edu

   -----------------

   Paul Krugman, Princeton, N.J. / New York

   -----------------

   Elizabeth Warren, Cambridge, MA; Harvard University

   -----------------

   we need, too, to find financial support to buy half or quarter-pages in the press.  So, people in foundations, who give to such initiatives may be willing to help with that.

"In such an environment it is not surprising that the ills of technology should seem curable only through the application of more technology..." John W Aldridge

by proximity1 on Sat Jun 4th, 2011 at 08:12:59 AM EST
Here some data straight from the mouth of Hell:

http://www.bundesbank.de/download/volkswirtschaft/zahlungsbilanzstatistik/2011/zahlungsbilanzstatist ik052011.pdf

In the year 2010 Germany had a trade surplus with the EWU-Länder (17) that is the Eurozone numbering + 76.129 Billion €. And a current account surplus with the same countries at + 73. 379 billion €.

large surplusses with France, Austria, Italy, Spain and Belgium. A small one with Finland. Small deficit with Slovenia. Bit trade deficits with the Netherlands and Ireland.

My conclusion: Germany should leave the Euro at once, to devalue vis-a- vis Ireland and the Netherlands

by IM on Mon Jun 6th, 2011 at 07:11:05 AM EST
My conclusion: Germany should leave the Euro at once, to devalue vis-a- vis Ireland and the Netherlands

I realise that this is tongue in cheek, but you cannot quite conclude that.

If the Netherlands and Ireland have a trade deficit against Spain, Austria, Italy, France or Belgium, you would have to net out those transactions before concluding that Ireland and the Netherlands should permit their currencies to appreciate.

You should also look at the balance sheets involved - surpluses are not necessarily destabilising if they go towards paying down foreign debt. The problem is that surpluses rarely end when the country goes from being a net debtor to a net creditor, which is the point where the surpluses start becoming Ponzi-like if not contained.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 6th, 2011 at 01:58:33 PM EST
[ Parent ]
In a financialized economy it seems that trade surpluses almost always turn into asset bubbles -- somewhere. In the 70s Saudi surplus "petrodollars" were "recycled" through US banks, such as Citi, who then loaned them to Argentina, etc., leading to "The Latin American Debt Crisis": Saudi surpluses through US banks to Latin American bubbles.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 8th, 2011 at 04:26:51 PM EST
[ Parent ]
Not necessarily.

If a country's primary trade deficit is less than the difference between its sustainable growth rate and the interest it pays on its foreign debt, the foreign debt will converge to a stable level.

But you don't hear so much about those cases, because they don't make headlines by going boom every ten years.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 8th, 2011 at 06:32:01 PM EST
[ Parent ]


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