European Parliament Papers on Deficits and Global Imbalances

Excellent paper, Karl. It is refreshing to see an evidence-based debunking of the contention that “it’s all the fault of the Chinese and Arabs (or, in our case, the Germans) for allowing the injection of too much funds far too cheaply and, God love us, we lost the run of ourselves”. (Just a little niggle. On p9 I expect you favour encouraging the Chinese authorities to allow an appreciation of the RMB and not a depreciation.)

The emphasis on financial regulation is also refreshing and timely. The cruel irony is that this huge inflow of cheap funds could have been used for boring investment in physical and social infrastructure. But this would not generate the rates of return – and the pace of investment recovery – desired by the Masters of the Universe. Governments (and taxpayers) are now left with the bill to unwind this excessive leverage – and are stuggling to secure the funds to finance the boring investment in infrastructure to make up for previous under-investment, to counteract private sector deleveraging and to promote economic recovery. And to make things worse, in the EU market liberalisation policies have destroyed the business model that allowed the commitment of final consumers to pay for utility services to underpin the recovery of infrastructure investment.

Given the inability of European Parliamentary Committees to hold the EU’s grand panjandrums effectively to account, I’m not sure what impact your paper (or those of your colleagues) will have, but they can’t say they haven’t been informed.