In one sense the eurozone trouble is a smaller version of the world problem. In both cases one or more countries have export surpluses that have been high and persistent. There must at the same time be other countries with, in total, equivalent import surpluses to match. At the moment all the emphasis is on deficit countries to reduce their deficits. In the past when this has happened exchange rates have changed to correct such a mismatch. Neither in Europe where the main culprit is Germany, nor in the wider world where the main offender has been China, has this correction occurred .

By definition exchange rates within the Eurozone cannot change. China has made some moves in the right direction, but not enough. Japan is actively resisting a higher Yen. So, if an exchange rate adjustment is ruled out, in what other ways could the situation be corrected?

. Consumption in surplus countries could increase to raise imports. There could be some sort of penalty on persistent high exporters. Surplus countries subsidise deficit countries, or, probably, provide finance to some international organisation.

Import surplus countries will by definition have increased their total level of debt, either the national debt or the total debts of individuals. They can react by reducing the demand for imports (severe austerity programmes), perhaps combined with import restrictions, or, if they can, by increasing their economic growth rates to a higher rate than those of the exporting countries. Increasing the growth rate, however, must be a long term aim, since it means higher investments which in turn require higher savings, which has to be geared so that consumption does not decline at the same time. Some decline in the Euro exchange rate would help.

Realistically it will need some combination of policies to work and it would inevitably take time for them to be effective. Some emerging countries might usefully be able to raise their imports and reduce savings. What is not possible as a solution is for the near universal policy of severe austerity. Everyone would then lose out. For a collection of the above policies to work, there would have to be a short term rise in the amount of international liquidity available.

So what are the prospects? Very poor. Even if the economics could be agreed, there seem many political obstacles that would stop or limit their application. So the outlook for Europe looks terrible, and that for the world, rather poor.