From Prof Tony Thirlwall.

Sir, Martin Wolf (“Germany is a weight on the world”, November 6) is absolutely right to point the finger at Germany for the deflationary bias it imposes on the rest of the eurozone and beyond by running a huge balance of payments surplus on its current account and being unwilling to adjust. One solution would be for penalties or fines to be imposed on any country running a surplus, with the severity of the fine related to the size of the surplus as a proportion of GDP.

A scheme of this nature would make much more economic sense than the current policy of penalising countries for exceeding an arbitrary budget deficit to GDP ratio that simply adds to deflation. The idea would be similar in spirit to what Keynes had in mind at Bretton Woods in 1944 for the world economy – a proposal, alas, never accepted – with creditor and debtor countries penalised equally and symmetrically to avoid all balance of payments adjustment being placed on debtor countries; a sure recipe for deflation as we witness in the eurozone today.

Tony Thirlwall, University of Kent, Canterbury, UK

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