Europe’s savings should not be allowed to finance the United States even more than before the COVID crisis

The euro zone has had excess savings over investment since 2012 as a result of the fact that Germany and the Netherlands have no longer lent their savings surpluses to the other euro-zone countries. A significant share of the euro zone’s savings surplus is lent to the United States in the form of purchases of US Treasuries. Since 2012, this has led to the highly frustrating situation where a share of Europe’s savings has allowed the United States to have large fiscal and external deficits and therefore a higher level of activity and growth at the same time as growth in the capital stock in the euro zone has been slow. The COVID crisis may further exacerbate this situation if it leads to caution among households (significant precautionary savings) and companies (weak investment). The only way to prevent an even larger transfer of savings to the rest of the world outside the euro zone ( to the United States ) would be to absorb these savings with a permanent investment fund (renewed as long as the savings surplus persists) in the euro zone (or European Union).