In Europe, Germany sits at the heart of these imbalances, he argued. By suppressing domestic demand and focusing on exports as its main engine of growth, the German government has in effect forced its trading partners to become large net debtors.
The measures introduced to lift the global economy out of the 2008 crisis—huge infusions of monetary and fiscal policy—helped to prevent the disaster from turning into utter catastrophe. But they didn't resolve the underlying stresses that had taken the global economy to the brink in the first place.
Since the downturn, Germany has continued to rely on exports to keep its economy going. Its trading partners, already struggling under mountains of debt, have ended up borrowing even more.
The result will prove just as ugly for Germany as it is for the countries currently struggling with debt. That's because Germans "will find their loans eventually repaid in depreciated currencies, if at all," Mr King said.
And while borrowers will still have the Mercedes and BMWs, the Miele washing machines, the machine tools and other industrial equipment they bought from Germany, Germans will be sitting on stacks of worthless, or near worthless, IOUs.
Instead, what Germany must do is to expand its domestic demand and import more so that deficit countries can generate the income with which to pay back what they owe, he concluded.
German Trade Policy Bankrupting Europe