The Chinese imbalance is not only implicated

Are the Greece and the Portugal on their financial difficulties the tree that hides the forest Is there a risk of collapse of the euro area

No, I think, this does not preclude that there is a budgetary problem in Europe. The Greece is the first country to suffer the penalty of the markets. The fact that they are worried encourages the country to take measures, which is a good thing.

The eurozone suffers not the fact that economies are basically very different from one country to another Is the euro area sentenced to term

The advantages and disadvantages of a single monetary zone were known from the outset. A common currency brings more discipline, increased competition and eliminates the problems associated with Exchange rates. These beneficial effects are checked. Europe certainly better out of the crisis with the euro with national exchange policies. Nevertheless, a union has a cost in asymmetric shocks. The usual adjustment by the rate of Exchange to regain competitiveness cannot be achieved. In the first five to six years, everything went well. Now, with the crisis, the Portugal, the Spain and the Greece experience serious difficulties. These involve very painful adjustments. Especially when the inflationary environment is very low. The recovery of competitiveness may require heavy sacrifices, such as a reduction in wages.

Some rich countries but also some Asian countries complain about the undervaluation of the yuan. Is there not a risk of rising protectionism against China

The debate on the revaluation of the yuan is often presented in a counterproductive way. China has an abnormal rate of saving, resulting in significant malfunctions. On households, it testifies to a great uncertainty on the future health, education, retirement. On business, he translated a poor governance and a problem of distribution of profits. China must therefore increase its consumption. Indeed, it takes steps in this direction.

It is in this context that we must think the value of the yuan. If consumption increases without having reduced external demand, the country will face inflationary shock. China cannot simply cannot grow at 15 per year! She therefore needs to slow down external demand, and thus to allow its currency to appreciate. This must be part of its strategy.

The Chinese imbalance is not only implicated. Is the US trade imbalance in the process of diminishing

One of the major changes of the crisis is that the rate of consumption of us consumers declined. This is good news in the long term because the savings rate was too low, but poses problems of application in the short term. The decrease in consumption is, for the moment, partially offset by budget deficits. But he will have something else to take the relay. The best solution, at least on paper, would be an increase in exports and a decrease in the US trade deficit.

The most effective lever is the exchange rate of the yuan...

This is certainly one of the levers. The issue is its strength. We tested with our models a 20 appreciation of Asian currencies taken together (yuan, Korean won, etc.) with a drop of Chinese savings rate. We would get an improvement in the trade balance of the United States in the order of 1 of GDP, and roughly the same for the euro area. This is not negligible, but it is not sufficient to maintain strong growth in rich countries.

Where is the rest of the solution

It is, almost by definition, increase private domestic demand, i.e. the consumption and investment. With regard to consumption, it would be contradictory, in any case for the United States, with upwelling - required - the savings rate. Ideally, it should be a recovery of investment, which is may be possible if interest rates remain very low. Once companies have eliminated their overcapacity, they will benefit from the low cost of capital which corresponds to money almost at zero price.

Central banks must therefore maintain the interest rates at very low current level

It is essential, and for as long as necessary. As long as there is no strong recovery in private demand, it is absolutely vital - perhaps beyond 2010. If this creates bubbles here and there, should act in various ways, but the essence is that activity reparte. This does not preclude central banks begin to remove aspects of their monetary policy that does not pass rates.

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