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On the United Kingdom, Charlie Bean notes that the significant depreciation of sterling should help to reduce the persistent UK current account deficit. It has had an appreciable effect on exports and imports of goods. But net trade in services has been puzzlingly weak. It may be that trade in services takes longer to respond to price changes and the benefit from the depreciation will show through in time. But there is a risk that the type of services that the United Kingdom trades are not especially price sensitive, which would imply “a less optimistic outlook”.
Turning to the euro area, Charlie Bean notes that although for the area as a whole the current account has been in balance since the euro was introduced, there have been large imbalances between members - with the periphery running large deficits, financed in large part by borrowing from core countries, especially Germany. Resolving these imbalances requires dealing with excessive debts of banks and sovereigns in the periphery, but also restoring their competitiveness “which may require a sustained period of spare capacity in the periphery and/or excess demand in the core.” He notes that “There is, however, an inherent asymmetry...that when credit flows dry up, adjustment is compulsory for the debtor but only voluntary for the creditor....the pressure for austerity is greater in the periphery, than it is to boost demand in the core....While the euro area authorities have been making substantial progress in constructing the economic architecture to support the monetary union, the adjustment process taking place in the periphery is nevertheless likely to continue to weigh on euro-area demand prospects for some time.”
Nonetheless, there are some aspects of the international policy process that have “worked well”. The G20 has enabled an exchange of views between countries which has helped to avoid the worst outcomes, such as a return to protectionism. It has also set the direction and tone for redrawing the scope of global financial regulation - an area where a lot has been achieved in a relatively short period of time.