Matt Yglesias reported this morning on Undersecretary of Treasury Lael Brainard speaking to the National Association of Business Economists. She was talking about how to get southern Europe (Greece, Italy, and so on) out of their depressions. She said, “Not only do deficit countries have important responsibilities in this regard, so do large surplus economies.” Let me explain what she means by this.
The southern countries are now suffering because when the Euro became one, lots of money flowed into these countries in the form of investment from richer countries up north. This had the effect of raising wages in the south. But when the 2008 crisis hit, all this money stopped flowing in. And because their wages were now too high, their exports were uncompetitive. As a result, these poor countries are net importers of goods. In order to get their economies rolling again, they need to become net exporters.
That’s all fine, and these countries have suffered badly and have given it the old college try. But a country can’t become a net exporter if all other countries are also net exporters. The problem is that the countries in the north have not enacted policies to help. Germany, for example, is still a net exporter. They are a rich country. They should enact policies that will increase imports. But they have resisted this.
And this is all so very German of them. They seem to think that the economic problems in southern Europe are all those countries’ problems. I don’t know, I guess they think that Italy forced those German bankers to lend them money. Regardless, there were two parts of the problem and as Brainard points out: there are two parts of the solution. Germany standing around telling Italy it’s all wrong doesn’t solve anything. Except to make Germans feel superior. And we’ve had more than enough of that export.