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All right, so, I think it's becoming increasingly clear
especially in the light of what's happening
that it is not just that a financial crisis
That certainly there are countries that had no significant financial problems
like Finland, like Japan, where
companies and banks were extremely well
and they suffered, if anything, far worse
than countries like Britain
and the United States
that have very large financial systems that were supposedly at the heart of all this.
The second thing i think that you've seen is that what you really seems to be
at the root of the problem
especially in europe
is the international imbalances
and those are not at all related with the financial crisis.
So the fact that Germany
is tied into the euro area
with Italy, with Spain, with Portugal, with Greece, with others breaks with the hollywood brothers and
And it's not, by the way, just Germany, it's also Netherlands, it's Denmark
to a lesser extent,
given that they have fixed exchange rates
and that they have huge competitive advantages
what you see is that they have this enormous
surplus and countries like Italy have deficits
in substantial fraction of GDP and extremely hard to sustain over time
In a sense, what Germany is doing is exporting
any job problem they might have
to Italy, to Spain, to others
and they can't protect themselves
because they can't have the Deutsche Mark appreciate as in the old days
and i think that's a mechanism at work that's extremely important. xp
If you look around the world you see in fact that mechanisms at the heart of crisis.
Japan has run for
50 years now
large and growing trade surpluses. Why?
because they've always thought of themselves
resource poor economy that needed
huge access to
exports over their essential imports,
and how did they maintain that surplus? They controlled the exchange rate.
China clearly was driving a growth trade export and
how do they maintain their large and growing surpluses? Again they manipulated their currency.
Germany we just talked about.
Countries like Korea, Indonesia, Thailand and Malaysia, they used to run big deficits,
They got into junk