Global Imbalances, Bretton Woods II, and Euroland’s Role in All This

Approaching the issue of mounting global imbalances through the angle of the ‘Bretton Woods II hypothesis’ (BWII), this chapter sets out to investigate Euroland’s role in particular. It is argued that popular preoccupations with the US’s ‘twin-deficit’ and China’s ‘beggar-thy-neighbour’ (renminbi) undervaluation only scratch the surface of what are really the consequences of a rather complex set of causes and developments. Systemic deficiencies in the global monetary order that induce the developing world to run current account surpluses and accumulate dollar reserves is one factor. Japan’s and Germany’s protracted domestic demand stagnation is another. Germany’s key role somehow disappeared with the shift in focus on Euroland as a whole, and Euroland’s role, in turn, was written out of the play when the oil price boom turned the area’s current account surplus into a small deficit. It is erroneous to ignore the global ramifications of protracted domestic demand stagnation in an economic area similar in size to the United States. Just as it is hypocritical to bark at China’s external surplus which really only attained a globally significant role over the last couple of years — while the US external deficit has built up continuously since the early 1990s.