From William Keegan’s column in the sadly reduced business section of the Observer, a newspaper that used to be worth buying just for its business section, it looks like the sunshine club has got another member, ex-MPC man Christopher Smallwood of Lombard Street Research:
In Lombard Street Research’s Monthly Review for September, the economist Christopher Smallwood reminds us that “a currency system with Germany at its core necessarily displays a strong deflationary bias. For a monetary union to work well, it needs to be operated on the basis of ‘symmetrical obligations’ among the members. But if the strong surplus country is perpetually unwilling to take expansionary action, all necessary adjustments within the system have to be made by deficit countries taking deflationary action.”
Smallwood points out that Greece, Portugal, Spain and Italy have suffered a rise in costs relative to Germany and some of the northern economies of up to 30%….
Meanwhile, the BANKERS! remind us that something like 15% of German GDP is accounted for its intra-eurozone trade surplus. Also, note that JÃ¼rgen Trittin and the Greens are calling for a Northern European fiscal reflation, according to the transcript of the EFSF debate.
Speaking of the Observer and bankers, Heather Stewart quotes the IMF:
“The large number of ‘underwater’ mortgages poses a risk for a downward spiral of falling house prices and distress sales that further undermines consumption and labour mobility,” it warned, calling for courts to be allowed to write off a proportion of mortgages where borrowers have got themselves in trouble; for the taxpayer-backed mortgage guarantors Fannie Mae and Freddie Mac to encourage writedowns; and for an extension of state-level programmes to support troubled homeowners.”
The IMF is now arguing for unilateral cramdown by the GSEs.