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Unbalanced Europe

The unwinding of today’s global imbalances – led by revaluation of the renminbi and China’s shift to a growth model based on stronger domestic demand – might be only a matter of time. Europe’s internal imbalances, however, are a much knottier problem.

BRUSSELS – The G-20 governments have declared that competitive devaluations (or currency wars) must be avoided. Excessive external imbalances, they also argue, should be monitored and perhaps fought in a coordinated way.

Those resolutions sound mild. But there is no good reason to tackle these problems differently. After all, there are no instruments to enforce strict rules at the global level, and the unwinding of today’s global imbalances – led by some revaluation of the renminbi and China’s shift to a growth model based on stronger domestic demand – might be only a matter of time.

Europe’s internal imbalances, however, are a much knottier problem. The G-20 decided not to deal with the issue and agreed to treat the 27-member European Union as a single region. Defined that way, the problem disappears, because the current-account deficit of the EU as a whole is only about 0.35% of its GDP, even though individual member countries have very different external positions.

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