Europe needs more than fiscal prudence

As Philip Whyte observes in a piece for the CER (Eurozone governance: Why the Commission is right), Germany's position is "one-eyed". When the global financial crisis erupted in 2007-2008, Spain was running a budget surplus, not a deficit, and its present difficulties have very little to do with government irresponsibility. They have been caused by a housing market bubble, an over-extended banking sector, very high levels of private sector debt and a rigid labour market that has exacerbated Spain's long-term loss of business competitiveness. What is therefore required is action to rectify the eurozone's macroeconomic imbalances - the fact that Germany runs persistently high current account surpluses and other countries, principally in southern Europe, run persistently high deficits. To recommend, as the Germans do, that other nations should just get their act together and become more competitive - in a word, behave more like Germany - is not practical politics or economics. As Whyte says, "deficits and surpluses are umbilically linked: one entails the other".