The EU as a Deficit Economy

Emmanuel notes in a comment on my Global Imbalances post that perhaps the EU's net external balance is the better focus than the current account of a particular EU country like Portugal. This is probably true. Moreover, once we look at the EU as a whole we see additional evidence about why Geithner's proposal misses the point.

If we net out the individual EU members to produce an overall EU current account position, we see that the EU has a current account deficit. Hmm, that piece of information doesn't really help Geithner convince Angela Merkel of the need for a smaller German surplus, now does it?

And as Will points out, the distributional consequences of adjustment create incentive for Merkel and Co. to emphasize the EU-as-a-whole where, obviously, the contribution to global balancing must come through reducing the EU current account deficit rather than producing a smaller German surplus. In fact, perhaps the EU needs a bigger German surplus in order to bring the EU as a whole into balance?