Must-Read: Brad Setser: Why Is The IMF Pushing Fiscal Consolidation in the Eurozone in 2017?

Must-Read: Calling Brad Setser! The argument over whether the IMF should “worry about global demand as well as global balance of payments adjustment” was lost back in 1944, when John Maynard Keynes pushed for symmetry and Harry Dexter White nuked it on the grounds that the U.S. would always be a surplus country and so did not want the IMF having levers it could use to push surplus countries around!

Brad Setser: Why Is The IMF Pushing Fiscal Consolidation in the Eurozone in 2017?:

If the IMF wants to be symmetric and worry about global demand as well as global balance of payments adjustment…

…the IMF needs to be as aggressive in recommending fiscal expansion in surplus countries as it is in recommending fiscal consolidation in deficit countries. Judging by its recommendations in Europe, it still has a way to go…. I also will be watching the IMF’s 2017 fiscal recommendation for Korea—which has a German-sized current account surplus and, broadly speaking, a German fiscal policy…. There is of course a second, more straight forward argument for why the IMF might want to encourage Germany to do a bit more public investment in 2017…. There is ample reason for the IMF to encourage Germany to offset the impact of the drag expected from Brexit… even if that means Germany would need to run small structural fiscal deficits for a time. It would support German growth in the face of an expected external shock… ease the pressure on monetary policy when the ECB is at the zero bound… make it easier for Italy, Spain, and France to offset the demand drag from fiscal consolidation through exports… facilitate the eurozone’s internal rebalancing… help reduce the eurozone’s contribution to global current account imbalances…