On the contrary, they usually insist that the surpluses are the consequences of domestic virtue, and they see no reason to give up being virtuous. Surpluses, they seem to believe, are the way God rewards them for their enviable behavior, and as their surpluses decline – an inevitable consequence of the malaise affecting their trading counterparts – they actually try to limit the decline and do all they can do to prevent it from becoming a growing trade deficit.

But this violates simple arithmetic. Trade deficit nations have received capital inflows for many years from surplus nations as the automatic counterpart to their deficits. If the surplus nations ever hope to get repaid – i.e. to reverse those capital flows – then it must be obvious that the trade imbalances must also reverse.

Spain, for example, can only support net capital outflows if it is running a current account surplus. Germany can only receive net capital inflows if it is running a current account deficit. If Spain wants to repay its debt to Germany, and if Germany hopes to have its Spanish loans repaid, this can only happen if the former runs a current account surplus and the latter a current account deficit.