##age of their current account surpluses owing to higher import costs ( from 3. 8 % in 2003 to only 0. 7 % in 2006 ). china, however, is projected to further widen its current account surplus from 3. 2 % in 2003 to nearly 6 % in 2006. finally, the euro area is in a roughly balanced position, although underlying national heterogeneity remains significant : germany with a current account surplus of over 4 % in 2005 ( netherlands nearly 5 % ) and large deficits in portugal ( 8. 4 % ), spain ( 6. 2 % ) and greece ( 3. 9 % ). owing to oil revenues, countries in the middle east have moved into notable surplus positions over the past few years ( even higher than asian countries ). in part, the increasing middle east surpluses come at the expense of other regions. this is clearly visible in asia ( excluding china ). the us current account deficit is increasingly soaking up global savings, in 2005 the us current account absorbs more than 7 % of global savings according to imf projections. given that savings are predominantly invested at home – although home bias has declined over the past years – these figures still underestimate the us influence on international saving assets. 1 / 7 therefore, the topic of global imbalances is closely aligned to current account developments in the united states. this does not mean, however, that possible causes of global imbalances are purely an us phenomenon. and it does not mean that appropriate policy responses should be required only of the us authorities. nevertheless, it is the development of the us current account deficit that lies at the heart of widely discussed concerns among policy makers and economists. there is one reason for this : it is the question of whether the us current account trajectory is sustainable. and unsustainability, of course, means that “ things that can ’ t go on forever, don ’ t ” as stein ’ s law of policy reminds us. 2. 1 some brief remarks on sustainability for sustainability not to be more than just an empty phrase there is, of course, a need for an operable definition. unfortunately, there is no universally accepted definition of an unsustainable current account. economists who refer to it commonly use the theoretical framework of the intertemporal approach to the current account. the key message here is that a country must satisfy its intertemporal budget constraint : judged against this benchmark, the sustainability issue for the us current account

a quantitative change to their trade balance as the united states should not imply ease of adjustment. in fact, just the opposite could be the case as each country, facing the policy choices and structural challenges to reorienting demand, production, and financing, could argue that someone else should go first. ” however, in my view the european role in facilitating the adjustment process is clearly more modest than the tasks for the other players, especially for the us itself. there are two reasons for this : first, even if stronger growth in europe is certainly something we all desire, the well - known smaller income elasticity of us exports compared with the import elasticity of the us economy ( houthakker - magee - effect ) means that the quantitative effect of higher european growth rates on the us trade balance will, in all likelihood, be modest. second : even if higher potential growth is of the essence in the euro area and might be spurred by suitable structural reforms, the effect on the current account position of the euro area is anything but clear - cut. for one reason : structural reforms have to be directed towards the non - tradable sector of the economy to improve the current account. for most of the currently discussed areas of reform – social security, fiscal policy – it is quite possible, that they will lead – at least in the short term – to increased savings in europe. this, of course, would not help the adjustment to global imbalances – on the contrary. so, all in all, the quantitative dimension of urgently needed structural reforms in europe with regard to the adjustment of global imbalances will – in my opinion – be of secondary importance. this does not mean that such reforms are not sensible in the light of risks associated with the current imbalances. there are, at least, two good reasons for this : they would enhance the flexibility and resilience of euro area economies in times when a smoother shock absorption capacity might probably be badly needed. and, of course, these reforms are urgently needed to improve the dismal potential growth performance in the euro area in general – and in germany in particular. in the euro area, the latest track - record with respect to growth enhancing policy measures has been disappointing. high public deficits and increasing government debt levels in the majority of member 5 / 7 countries have resulted in widespread difficulties to fulfil the commitment of the stability and growth pact. but it is empirically well - documented that solid public finances and low