Euroglut: a new phase of global imbalances
Introducing "The Euroglut"
The dust is settling on the Global Financial Crisis, and markets are now focusing on the future.
One prominent line of thinking is that the new normal is "secular stagnation" – weak trend growth and very low neutral rates.
Another view is that "normalization" is around the corner – growth will soon return, and policy will inevitably normalize faster, particularly in the US.
IEurope's huge savings glut – what we call euroglut – will drive global trends for the foreseeable future.
While euroglut seems similar to "secular stagnation", the asset price conclusions are very different and far more powerful. What is Euroglut? Euroglut is a global imbalances problem. It refers to the lack of European domestic demand caused by the Eurozone crisis. The clearest evidence of Euroglut is Europe's high unemployment rate combined with a record current account surplus. Both are a reflection of the same problem: an excess of savings over investment opportunities. Euroglut is special for one and only reason: it is very, very big. At around 400bn USD each year, Europe's current account surplus is bigger than China's in the 2000s. If sustained, it would be the largest surplus ever generated in the history of global financial markets.
