Wise words from Larry Summers

On Reuters’ website. In one short piece, the core of the whole problem: intra-EU trade imbalances, which caused the banking system of the EU to (nearly) collapse –  in Greece, Ireland and now, Cyprus. And let’s not forget the state support for the German Ländesbanken, several Dutch banks, a host of French banks. The key point is that Germany’s giant trade surplus was possible because of the institutional set-up of the Eurozone, i.e. the interest setting by the ECB created the possibilities for cheap loans in ‘the periphery’, which were often provided by French and German banks on the prowl for profit.

The only thing that can rescue the Eurozone is a great correction to the trade imbalances, which Yanis Varoufakis could be accomplished by a Surplus Recycling System between surplus and deficit countries. This exists for any country – the Finnish Helsinki region pays for the poor northern regions of Finland, similarly the rich ‘Randstad’ region in the Netherlands coughs up the funds to support the North-East of the Netherlands.

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