An outbreak of frugality across the eurozone

My column this week was on Germany’s attempt to export the German model throughout the eurozone. Here is some additional information on what has been happening. The story is quite remarkable for the scale of the shift towards private sector frugality across the crisis-hit countries.

The chart below is derived from the data on the fiscal and current account balances in the latest database of the Intenational Monetary Fund’s World Economic Outlook. By definition, the private sector financial balance (the difference between income and spending) must equal the general government balance (difference between receipts and spending) and the foreign balance (the net capital flow). The net capital flow is the inverse of the current account. So a country with a current account deficit has a capital account surplus, by definition – it is receiving more capital from abroad than it exports.