It’s becoming almost a standard narrative that actually the crisis was not caused by the Greek’s overborrowing, but instead by inadequate demand in Germany, needing involuntary demand for Germany’s exports to stabilise Germany, a demand that later wreaks havoc.
Before this takes hold too tightly, I think it’s worth remembering basic open economy models of trade, in which current account surpluses arise naturally, and improve everyone’s lot, if they are related to the relative demands and supplies for future consumption, and relative returns.
Thus, as a mature economy, with scope for future income growth limited, and an aging one, with demand for saving higher to provide for old age, it would be natural for capital to flow to countries engaged in a process of catching up levels of average factor productivity in Germany, where marginal returns are higher. Like Greece for instance.
In such a world, policy could shut off this intertemporal trade, but at great cost to both parties.
Part of the standard narrative is that this pernicious German saving was aggravated and helped along by the creation of the Euro, which, because of the weakness of the other countries, meant that German exports were overvalued.
The counterpoint to this is that nominal exchange rate regimes should not matter for anything much, intertemporal trade included, beyond horizons of 5 years or so. Certainly not at the frequency of 2 decades, which is what some of the versions of the evil savings hypothesis deploy.
All is not quite so simple, of course, in the real world. For the welfare improvements long- term current account surpluses and deficits to be there for the having requires that parties on either side of the trade understood the relative income profiles correctly, and also correctly understood the risks around them.
In the case of Greece and the other catch-up countries, it’s plausible to think that there ought to have been great uncertainty about just how far, given existing institutions, or plausible assumptions about how they would evolve, Greece’s income per head would catch up. And that it was easy, in the early phases of that catch up, to guess the end point wrongly. And we know now that there is much evidence, not least hindsight, that risks were not correctly priced in, or, if they were understood, were understood to be the business of someone else [in the case of mysteriously narrow spreads on EZ peripheral sovereign bonds].
Seen this way, the appropriate response is not radical and far-reaching intervention to prevent countries that want to save from saving, but mechanisms to tackle market failure in risk bearing and risk pricing. Which is what, slowly and clumsily, is going on.
All that said, there are lots of problems with and puzzles for the basic toolkit on which those insights [they aren’t mine] are built. But it should take more to displace it than simply the assertion and global recycling of the story of an evil capitalist saving bogeyman.