“In a comprehensive study published in December 2012, the Commission also looked at the reasons for large and persisting current account surpluses. While current account surpluses should be a sign of healthy competitiveness, they can also reflect market failures or a weakness of domestic demand and investment opportunities. The macro-economic imbalances observed in the EU resulted in a misallocation of resources in surplus countries with negative implications for growth.”

Wow. Tough wording by the European Commission. Against Germany. It is only a pity that just a few months ago the same Commission had stated that:

“In the previous round of the MIP, Germany was not identified as experiencing imbalances… These losses (in export market shares) appear moderate overall and are consistent with the on-going reduction in the current account surplus … Looking ahead, the latest forecasts indicate that the current account surplus will decline at a moderate pace in 2012-2014 … Overall, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.”

So the recent statement by the EC is, as usual, too little too late.

Now just imagine, to go all the way toward solving the euro area problems. Yes, the Full Monty.

*

Imagine now that Germany were to push forward with a fiscal stimulus of 1% of GDP, 25 bn euro, of lower taxes and more public investment. According to IMF papers, this could go as far as to reduce its current account surplus by 0.5% of GDP, 13 bn euro that is.

There is another way, as we know, we can reduce by 13 bn Euro the divergence between deficit and surplus countries of the euro area: ask Portugal, Cyprus, Greece and Spain to lower their deficit. Through austerity. An austerity that, given their joint smaller size compared to Germany, would require each one of them to generate a 2% of GDP fiscal retrenchment. Only if Italy were to join the pack of the austere countries would one be able to obtain 13 bn less deficit of euro current accounts with a 1% fiscal package of austerity made of higher taxes and lower government consumption.

With only one tiny tiny difference between the 2 strategies of reducing asymmetries in the euro zone. With the Full Monty, with Germany expanding and importing Italian et al. exports, both would end up better off, with greater output and employment. With Italy et al. adopting austerity, both would end up where we are today: all of us with greater unemployment and lower output.

If Europe does not go for the Full Monty, well you know the movie: unemployment, unhappiness, break-up will be the only words that will dominate the future of Europe.