I believe it is obvious that if some countries have trade surpluses, some others should have trade deficits. Of course this statement might be wrong if the countries with trade surpluses secretly export goods and services to aliens. Nonetheless we can easily assume that such a transaction cannot be kept secret for long. In that case, foreign trade or current account surpluses will be one side of the coin while foreign trade or current account deficits should be the other side of the coin.

The USA has been suffering from a significant amount of current account deficit. On the other hand, Germany, China, and Japan record large current account surpluses. We can define current account surplus in several ways. One is: a country which invests and consumes more than its income has current account surplus.

In the light of this definition, we can indicate that US residents consume and invest largely. The exact opposite can be said for countries with current account surpluses. We should note one point to state this in a more popular way: In market economies the level of investment expenditures is way below that of consumption expenditures. As a result, we can say that US citizens consume more and Germany, China, and Japan consume less in comparison with their income.

On the other hand, the years 2008 and 2009 were unpleasant for the whole world. Excluding some with a closed economy, all countries grew at a pace below their potential growth rate while several countries encountered economic contraction. Economies should recover so that unemployment, which tended upwards at global scale with the crisis eases. To do this, residents of the countries enjoying economic growth should spend more.

In the G20 meeting held in Korea, US Secretary of Treasury Geithner rightfully said that the recovery of the world economy should not be associated only to increase of consumption by the consumers in the US. In this context, he asked countries that have current account surpluses, and particularly Germany to increase consumption and investment expenditures. The message is delivered to not only Germany but also other European Union (EU) member countries with current account surpluses.

One to the point economic policy to enable consumer to consume more might be cutting tax rates. Additionally, increasing consumption expenditures by the public sector can also be considered as a measure. It is evident that countries that chose this second option will encounter an elevation in public budget deficits. In fact, public finance is disrupted to this extent since such measures were launched in 2008 and 2009 in order to prevent further economic contraction.

On the other hand, the EU, some members of which are invited to consume more, is busy with the crisis of its own. South wing struggles with budget deficit and high public debt. And these problems did not stem from the measures to increase public expenditures in 2008 and 2009. Loose fiscal policy is a long-lasting phenomenon for some of these countries. Last week Hungary also joined this group, along with irresponsible statements of the members of the government. Germany in particular complains about the deterioration in EU's public finance. Merkel has already made a statement reading: "growth cannot come at the expense of reductions in public deficit." Trichet, President of European Central Bank, also underlines that the deteriorations in public finance shall be the top priority problem to tackle.

Yes, Geither, when asking countries to consume more, does not imply they should act irresponsible in terms of fiscal policy. He underlines that the emphasis on fiscal discipline should have a medium-term perspective. However, neither Germany, not the European Central Bank seems to support a policy that will promote economic growth over fiscal discipline in the short term. In the meanwhile IMF emphasizes that early initiation of measures to secure fiscal discipline leads to delays recovery in world economies.

Then, is fiscal discipline necessarily an impediment to growth in the short run? Or, can we seldom see a flying fish? If you ask about this 'flying fish' example, it refers to the response IMF President gave to a question in a meeting. Let us focus on this in the next commentary.

This commentary was published in Radikal daily on 07.06.2010