In China, for example, such reforms might include measures to improve social security, which would reduce precautionary household saving, strengthen domestic demand and ultimately lead to a more balanced current account. Economies with persistently large current account deficits, on the other hand, should adopt measures to support saving.
This requires a sizeable decline in domestic absorption – the income levels and growth rates which prevailed before the crisis are no longer the appropriate benchmarks. Governments have to stabilise the public deficit, while households have to reduce their debt which had grown rapidly during the housing bubble.