Commentary
Michael Pettis
{
"authors": [
"Michael Pettis"
],
"type": "legacyinthemedia",
"centerAffiliationAll": "dc",
"centers": [
"Carnegie Endowment for International Peace"
],
"collections": [],
"englishNewsletterAll": "asia",
"nonEnglishNewsletterAll": "",
"primaryCenter": "Carnegie Endowment for International Peace",
"programAffiliation": "AP",
"programs": [
"Asia"
],
"projects": [],
"regions": [
"Western Europe"
],
"topics": [
"Economy",
"Trade"
]
}
Source: Getty
In The Media
A Deficit Driven by Excess Consumption Must Eventually Reverse
Trade deficits generated by credit-fueled consumption are unsustainable, and can be reversed by either shifts in the policies of surplus-producing countries abroad or by crippling austerity at home.
Published on Dec 16, 2011
Source: Economist
If a country is running large and persistent trade deficits, however, because a surge in domestic credit has boosted consumption levels excessively and so reduced savings levels, then the resulting increase in debt is clearly unsustainable and will have eventually to be resolved by a reversal in the trade deficit. This is the problem countries like Spain are facing. What is often not recognised is that the credit-fueled consumer boom in Spain was actually caused as much by consumption-repressing policies in Germany as by domestic distortions, and so without a reversal in German polices (and surplus countries historically never accept their responsibility for having created trade distortions), the only way Spain can resolve the persistent trade deficits is via default, devaluation, or very high levels of unemployment for many years. This is a classic kind of "bad" persistent trade deficit.
About the Author
Michael Pettis
Nonresident Senior Fellow, Carnegie China
Michael Pettis is a nonresident senior fellow at the Carnegie Endowment for International Peace. An expert on China’s economy, Pettis is professor of finance at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets.
- What’s New about Involution?
- Using China’s Central Government Balance Sheet to “Clean up” Local Government Debt Is a Bad IdeaCommentary
Michael Pettis
Recent Work
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
More Work from Carnegie Europe
- Global Instability Makes Europe More Attractive, Not LessCommentary
Europe isn’t as weak in the new geopolitics of power as many would believe. But to leverage its assets and claim a sphere of influence, Brussels must stop undercutting itself.
Dimitar Bechev
- How Turkey Can Help the Economies of the South Caucasus to DiversifyArticle
Over the past two decades, regional collaboration in the South Caucasus has intensified. Turkey and the EU should establish a cooperation framework to accelerate economic development and diversification.
Feride İnan, Güven Sak, Berat Yücel
- How Europe Can Survive the AI Labor TransitionCommentary
Integrating AI into the workplace will increase job insecurity, fundamentally reshaping labor markets. To anticipate and manage this transition, the EU must build public trust, provide training infrastructures, and establish social protections.
Amanda Coakley
- Can Europe Still Matter in Syria?Commentary
Europe’s interests in Syria extend beyond migration management, yet the EU trails behind other players in the country’s post-Assad reconstruction. To boost its influence in Damascus, the union must upgrade its commitment to ensuring regional stability.
Bianka Speidl, Hanga Horváth-Sántha
- European Democracy Support Annual Review 2025Paper
European democracy support strategy in 2025 prioritized protecting democratic norms within Europe. This signals the start of a structural recalibration of the EU’s approach to democracy support.
- +6
Richard Youngs, ed., Elena Viudes Egea, Zselyke Csaky, …
