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When you make that argument Eurozone-wide you end up with the argument that core surplus should have flowed abroad. Which would have meant a weaker Euro (and you have seen how the Swiss Central Bank reacted to that) or foreign-credit tensions in peripheral EU countries (which has happened, massively, with Core - mostly Austrian - funds loaned to Central-Eastern Europe, and blown up twice since the crisis started) or monetary deflation in the Eurozone (again, Eurozone-wide recession).

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:58:03 AM EST
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The world is big. Unless those core surplus accumulated in just a few markets, they would have been comfortably diluted. Sure, the euro might have weakened somewhat, but not at all radically against certain currencies like the Swiss franc. The strengthening of the franc is purely an effect of flight to safety/quality.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:15:56 AM EST
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The world is big, and the Eurozone is not a negligible fraction of the world. So the world is not big enough to dilute capital flows on the order of the Eurozone trade imbalances.

But you're from Sweden, and Sweden is outside the Eurozone and small enough to have its surpluses diluted in the Eurozone, let alone the whole big world.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:23:34 AM EST
[ Parent ]
The world is big, and the Eurozone is not a negligible fraction of the world. So the world is not big enough to dilute capital flows on the order of the Eurozone trade imbalances.

I'm not sure about that. It seems to be able to swallow US CA deficits without much trouble, and the US economy is of the same magnitude as that of the EZ.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Dec 14th, 2011 at 10:28:03 AM EST
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Hmmm... just because the US CA deficit issue with China hasn't blown up yet isn't a good guide to "without much trouble."

The trouble is out there - and it's incoming. It can be solved, but it's going to take a huge political negotiation to do so - and may be a rough ride even with that level of leadership. With Merkozy levels of leadership, the prognosis isn't good.

by Metatone (metatone [a|t] gmail (dot) com) on Wed Dec 14th, 2011 at 12:46:28 PM EST
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The world is big.

The world also floats its currencies relative to the €-Mark. It would be triviality itself to retaliate against a mercantilist drive towards surpluses with RoW.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 11:02:49 AM EST
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We keep running circles around the small open economy mindset problem.
The many failures of the eurozone's crisis response policy have a common cause: the eurozone is a large closed economy. Each of its 17 members is small and open. The political leaders who run the eurozone have a small open economy mindset - every one of them, without exception. The economists they employ mostly use small, open economy models.


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 11:10:15 AM EST
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