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Germany must save less and consume more

First published: The Times, 05/04/2010

The sovereign debt crisis has focused a lot of attention on the responsibility and capability of large debtor nations to mend their errant ways. No one denies that they all face a painful and protracted period of fiscal restructuring. But creditor nations also have an important role to play in resolving the crisis. This role, unfortunately, is all too quickly denied, and barely discussed.

Difficult restructuring and reform has already been forced on debtor countries such as Iceland, Latvia, Hungary and Ireland. Greece has been obliged to plan for a massive decline in public borrowing over the next three years, Spain and Portugal are being closely monitored for their intent in pursuing similar retrenchment and the UK, the US and even Japan will follow suit, voluntarily or otherwise.

Synchronised and protracted fiscal tightening in countries accounting for about 40 per cent of world GDPhardly augurs well for the world economy and may, therefore, also result in increasingly fractious international relations and….more