The need for deleveraging means, at best, a stagnant Europe. And a stagnant Europe threatens to undermine all the agreements and backstops that have been duct-taped around the zone so far. Internally, it is a vicious cycle. Externally, it has additional consequences, namely for China.
Chinese investment is tapped out. It's not a viable substitute for a still soft Chinese export sector. What's worse: overcapacity from overinvestment is weighing on exporters who lose pricing power as natural resource and commodity prices remain bogged down by supply builds.
Why can't the consumer pick up the slack?
China has acknowledged the need to rebalance to a more domestically driven demand economy. They just haven't been able to make much progress.
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