Wednesday, February 15, 2012

The Impossible Has Happened?

We have often been told by Paul Krugman and others that deficit countries within the euro area, like Greece, Spain and Italy can't reduce their deficits without surplus countries like Germany and Holland reducing theirs.

Yet in December 2011, the aggregate euro area trade balance swung to a surplus of €9.7 billion from a deficit of €1.7 billion in December 2010, as Greece, Spain and Italy saw lower deficits while Germany and Holland saw their surpluses maintained.

This must mean that either 1) Something impossible has happened or 2) That Krugman was wrong. I leave it to you to decide which of these two things are more likely.


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