Hmm, gosh, am I speaking Martian or what? That wasn't my question.

Fact 1: most household DB's seem to be full of 20A breakers on plug circuits.
Fact 2: it seems to be popular to wire these circuits with 2.5mm^2 wire.
Interpretation 3: 2.5mm^2 wire (of any length) cannot safely carry 20A using typical installation methods.

Question: how to reconcile these?

Sparks, why do you suppose circuit length matters? Amps is amps is amps! Length is only an issue when considering voltage drop along the circuit. It doesn't affect the current carrying capacity of the wire.