The absurd system in which the euro zone finances the United States

The euro zone has now become the United States’ leading lender : its savings surplus is to a large extent lent to the United States. This situation where the euro zone finances the United States is absurd for four reasons: The euro zone finances the United States and has a very large trade surplus with the United States. Yet this arrangement between the United States and the euro zone is not cooperative. In contrast, the pre-2013 arrangement between China and the United States was cooperative. The euro zone in no way benefits from its role as lender to the United States, and is heavily criticised for its trade surplus with the United States. The euro zone has a significant investment shortfall and will need to invest considerably to carry out the energy transition. All this will probably give rise to an external deficit for the euro zone, which currently has a significant external surplus . So it is illogical for the euro zone to lend its savings to the United States instead of using them to finance the additional investment required domestically. Savers in the euro zone buy US Treasuries , as they consider it a risk-free asset. But it is not really risk-free. First, there is the currency risk with the dollar, given the rapid build-up of external debt in the United States. Then there is a risk of the United States becoming insolvent due to population ageing: the United States is going to begin its period of population ageing with huge external and public debt, when countries should have accumulate d assets before ageing sets in. Euro-zone s avers lend their savings to the United States at very low interest rates, despite the two abovementioned risks. As long as the euro zone has an external surplus, it would be much more efficient if it lent it to emerging countries to obtain much higher returns on these excess savings.