The Wall Street Journal Europe publishes an excellent paper by Irwin Stelzer, clearly explaining the current and future difficulties of the southern countries of the eurozone. The best analysis I have read since the new package of financial support has been decided in Brussels.
“China keeps its export machine rolling by pegging its yuan to the dollar, so that America cannot devalue its currency relative to the yuan, and instead must live with a large trade deficit. Which Americans can't afford. So China lends America the money with which to buy Chinese goods.
Germany keeps its export machine rolling by in effect pegging its currency, the euro, to the currencies of its European trading partners, who share that currency. So Greece, to which Germany sells lots of goods cannot devalue, and must live with large trade deficits. Which it can't afford. So Germany is setting about lending money to Greece—other countries to follow shortly —so that Greeks can continue to buy Mercedes and other products of the efficient German manufacturing and service sectors. And for good measure, it benefits from the falling euro, driven down by the Greek tragedy or comedy, take your pick, to increase its sales to non-euro countries.”
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