As with an external deficit, adjustment to a related internal deficit is ultimately the same under any exchange rate regime.

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This is the value of an exchange-rate peg in an economy such as Hong Kong's: adjustment to external shocks takes place through changes to domestic prices, rather than through exchange-rate levels.

ECONOMIST: Hong Kong

With the Eurozone expected to shrink a further 0.1% this year, after contracting 0.6% in 2012, European policymakers will have to work to achieve more symmetrical adjustment shared between core external surplus members, namely Germany, and peripheral deficit countries, Kraemer argues.

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