Policy makers in the [euro-zone] core believe in the sustainability of export led growth strategies. Keynes warned about this in the last piece he published before his death. If the reserves earned by current account surplus nations like Germany, Austria, etc. are not reinvested in productive capital equipment and structures in the current account deficit nations, then the deficit nations will not be able to earn the income required to service their external debt in the future. They will default. Or, as economist Jan Kregel put it in very clear terms, if Germany wishes to run a sustained current account surplus with the periphery, Germany can chose to accept either liabilities issued by the periphery, or tradeable goods provided by the periphery, but they do not have the option of choosing neither.
It is not in the best interest of the creditor/current account surplus nations to continually accumulate liabilities issued by debtor/current account deficit nations if this simply leads to eventual default on those obligations, but the economists and policy makers in the eurozone are too myopic and too blinded by faith to see this. The European Investment Bank could be used to recycle current account surpluses into productive capital investment in the periphery in a sustainable fashion, but instead, policy makers remain wedded to the faith based economic belief that export led growth strategies are both sustainable and optimal.
via Rob Parenteau: Blinded by Faith – Sinking the Eurozone « naked capitalism.
