The Saver’s Dilemma
For nearly a decade prior to the eurozone crisis, capital from high-savings countries like Germany flowed to low-savings countries like Spain. If the rebalancing that is now necessary occurs only in Spain and other low-savings countries, the result, as John Maynard Keynes warned 80 years ago, must be much higher unemployment.
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BEIJING – Most of the international financial crises that have occurred over the last 200 years were the result of strains created by the recycling of capital from countries with high savings to those with low savings. The current European crisis is a case in point. For nearly a decade, capital from high-savings countries like Germany flowed to low-savings countries like Spain. The resulting build-up in debt created its own constraints, and now Europe’s economy is forced to rebalance.