Download or read book The Evolution of Current Account Deficits in the Euro Area Periphery and the Baltics written by Mr.Joong Kang and published by International Monetary Fund. This book was released on 2013-07-17 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: Explanations of the large current account deficits for the euro area periphery and the Baltics in the run up to the crisis revolve around two main factors: deteriorating export performance or demand driven booms. We add that there were important movements in transfers and net income balances. While export performance remained relatively stable in most countries, for some countries, when transfers declined, households and firms borrowed so as to maintain the same level of spending. This was part of a persistent failure to adjust to trade deficits, which, along with rising net income payments, led to growing current account deficits. All of these factors played varying roles in the development of current account deficits across these countries.
Download or read book Macroeconomic Imbalances and Comparative Advantages in the Euro Area written by Stefan Collignon and published by ETUI. This book was released on 2012 with total page 141 pages. Available in PDF, EPUB and Kindle. Book excerpt: The emergence of macroeconomic imbalances among EU member states is often seen as a major underlying factor of the recent European debt crisis. In order to identify and tackle these imbalances, the European authorities established, in 2011, a new surveillance tool incorporating rules to prevent future imbalances and labelled the Excessive Imbalance Procedure (EIP). Stefan Collignon argues that the premises of the Excessive Imbalance Procedure are in fact wrong, and its implementation therefore misguided, in that they take for granted the policy framework of the nation state whereas the Euro Area economy is, in reality, integrated into a single market with a single currency, such that so-called ‘foreign’ debt is, effectively, debt to other residents in the Euro Area. The author demonstrates, furthermore, that strict adherence to the EIP could, in conjunction with other new economic governance instruments, entail devastating consequences for peripheral countries in the European Union. Following his observation that current indicators used by the Commission fail to provide a correct or accurate assessment of imbalances in the Euro Area, the author devises a new ‘Competitive Index’, calculated as the difference between actual and equilibrium unit labour costs, which he recommends as an alternative and better indicator in the context of the Alert Mechanism Reports to be issued by the European Commission in the future.
Download or read book Current Account Imbalances in the Southern Euro Area written by Piyaporn Sodsriwiboon and published by International Monetary Fund. This book was released on 2010-06-01 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper examines the causes, consequences, and potential cures of the large current account deficits in the Southern Euro Area (SEA). These were mostly driven by a decline in private saving rates. But it was the European Monetary Union and the Euro, which enabled these countries to maintain investment rates, and thus run larger current account deficits, by improving their access to the international pool of saving. The paper finds that the deficits in SEA in 2008 were larger than can be explained by fundamentals, though the situation varies substantially across countries. It also finds that although the global financial crisis has started to force some unwinding, the current account deficits are expected to remain high in the medium run, though again with substantial variation across countries. The paper argues these large external deficits pose risks to the economy and therefore matter, even in a currency union, and discusses some policy options to reduce them.
Download or read book Adjustment in Euro Area Deficit Countries written by Mr.Thierry Tressel and published by International Monetary Fund. This book was released on 2014-07-14 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Imbalances within the euro area have been a defining feature of the crisis. This paper provides a critical analysis of the ongoing rebalancing of euro area “deficit economies” (Greece, Ireland, Portugal, and Spain) that accumulated large current account deficits and external liability positions in the run-up to the crisis. It shows that relative price adjustments have been proceeding gradually. Real effective exchange rates have depreciated by 10-25 percent, driven largely by reductions in unit labor costs due to labor shedding. While exports have typically rebounded, subdued demand accounts for much of the reduction in current account deficits. Hence, the current account balance of the euro area as a whole has shifted into surplus. Internal rebalancing has come with subdued activity—notably very high unemployment in the deficit economies—and made continued adjustment more difficult. To advance rebalancing further, the paper emphasizes the need for: (1) macroeconomic policies that support demand and bring inflation in line with the ECB’s medium-term price stability objective; (2) continued EMU reforms (banking union) to ensure proper financial intermediation; and (3) structural reforms in product and labor markets to improve productivity and support the reallocation of resources to tradable sectors.
Download or read book Rebalancing written by Mr.Ruben Atoyan and published by International Monetary Fund. This book was released on 2013-03-22 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: After the 2003-2007 economic boom, European countries with large pre-crisis current account imbalances are undergoing adjustments. Countries are adjusting at different paces and ways reflecting the source and magnitude of imbalances, availability of financing, competitiveness of the tradable sector and external environment. While emerging European countries with large pre-crisis imbalances and a fixed exchange rate regime have seen sharp current account adjustments and a rebound in growth, adjustment in the euro zone periphery countries, which are also carrying a legacy of pre-crisis CA imbalances, has been gradual with difficulties bringing back growth. This paper is an empirical investigation of current account adjustment in Europe with a focus on these two groups, looking at contributions from cyclical and other factors, and seeking to draw policy conclusions.
Download or read book External Imbalances in the Euro Area written by Ms.Ruo Chen and published by International Monetary Fund. This book was released on 2012-10-09 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper examines the extent to which current account imbalances of euro area countries are related to intra-euro area factors and to external trade shocks. We argue that the traditional explanations for the rising imbalances are correct, but are incomplete. We uncover a large impact of declines in export competitiveness and asymmetric trade developments vis-à-vis the rest of the world –in particular vis-à-vis China, Central and Eastern Europe, and oil exporters- on the external balance of euro area debtor countries. While current account imbalances of euro area deficit countries vis-à-vis the rest of the world increased, they were financed mostly by intra-euro area capital inflows (in particular by the purchase of government and financial institutions’ securities, and cross-border interbank lending) which permitted external imbalances to grow over time.
Download or read book Rebalancing in the Euro Area and Cyclicality of Current Account Adjustments written by Mr.Thierry Tressel and published by International Monetary Fund. This book was released on 2014-07-22 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper examines progress with the external rebalancing of euro area deficit countries. Relative prices are adjusting at different pace across countries and with different compositions of wage cuts and labor shedding. There is so far limited evidence of resource re-allocation from non-tradable to tradable sectors, while improved export performance is still dependent on external demand from the rest of world. Current account adjustments have taken place, reflecting structural changes but also cyclical forces, suggesting that part of the improvements may unwind when cyclical conditions improve. Looking ahead, relying only on relative price adjustments (which adversely affects demand) to rebalance the euro area could prove very challenging. Structural reforms will play an important role in the reallocation of resources to the tradable sector and the associated relative price adjustment, while boosting non-price and price competitiveness.
Download or read book The Target Balances in the Euro Area written by Sebastian Lechner and published by GRIN Verlag. This book was released on 2013-08-12 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2012 in the subject Economics - Monetary theory and policy, grade: 1,3, University of Bayreuth, language: English, abstract: The European Monetary Union is stuck in a severe balance-of-payments imbalance. The European sovereign debt crisis, which followed the financial crisis, is present in the media, in politics and important economists try to evaluate the situation, in order to find possible solutions. This paper deals with the TARGET balances. TARGET2 is a payment system in the European Monetary Union, and, as will be shown, the TARGET balances are a measure for the balance- of-payment deficits and surpluses in the countries of the Eurozone. The issue is interesting as there are huge differences in the current account balances of member states. To understand the emergence of the TARGET balances , it is important to first look at the way a central bank creates money. This paper aims to show how TARGET balances arise when trade flows are not financed through inverse capital flows. Further on, it examines the current account deficits of Greece, Ireland, Italy, Portugal and Spain and shows how they led to tremendous TARGET2 debts of those countries. On the other hand it examines, how particularly Germany, to a smaller extend also Finland, Luxembourg and the Netherlands accumulated high TARGET2 claims towards the Eurosystem. Further on, it examines the development of the monetary bases in the Eurozone and how this affected Bundesbank money creation. Finally, it deals with some concerns regarding the TARGET balances . As it is a complex matter, opinions about their risk diverge. Some analysts think that they are highly problematic, others don’t see any risk at all. Some main ideas dealing with the risk involved will be presented in brief.
Download or read book Current Account Imbalances in the Euro Area Draft Version written by Alan G. Ahearne and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dispersion in current account balances among countries in the euro area has widened markedly over the past decade-and-a-half, and especially since 1999. We decompose current account positions for euro area countries into intra-euro-area balances and extra-euroarea balances and examine the determinants of these balances. Regarding intra-euro-area balances, we present evidence that capital tends to flow from high-income euro area economies to low-income euro area economies. These flows have increased since the creation of the single currency in Europe. We construct a novel data set regarding extra-euro-area balances. The data set contains, for the euro area and the most important member economies, exports and imports to and from the 10 respective most important trade partners outside the euro area. This allows us to study the determinants of the extra-euro current account and its interaction with intra-euro area trade balances. We estimate a model of the trade balance of the euro area and individual euro-area countries with the rest of the world. We find that a real appreciation of the euro against the currencies of its main trading partners appears to have a substantial effect on the euro area's net exports in the long run, though the immediate effect is small. Our estimates for individual countries suggest that the adjustment to a real appreciation of the euro would not be equally distributed across euro-area countries. In particular, Germany would bear the largest share of the adjustment, while the other large euro-area economies would be relatively unaffected. Finally, we find that the introduction of the euro seems to have changed the dynamics of trade balance adjustment in three of the larger euro-area economies.
Download or read book Progress Towards External Adjustment in the Euro Area Periphery and the Baltics written by Mr.Joong S Kang and published by International Monetary Fund. This book was released on 2014-07-22 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: The euro area periphery countries and the Baltic countries, which had large current account deficits in the run-up to the crisis, needed adjustment of relative prices to achieve both internal and external balances. Thus far, tangible progress has been made through lower wages and/or higher productivity relative to trading partners (“internal devaluation”), which contributed to narrowing current account deficits and shifting output towards the tradables sector. While some early adjusters cut wages more rapidly followed by productivity improvement, others have only slowly improved productivity largely through labor shedding. This adjustment for most countries has come along with a substantial recession as the unit labor cost improvement has largely come from falling employment and much of the current account improvement from import compression. Going forward, these countries still need to generate growing tradables sector employment and to continue adjustment to prevent imbalances from returning as output gaps close.
Download or read book Current Account Imbalances in the Euro Area written by and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Rising Powers and Economic Crisis in the Euro Area written by Ferdi De Ville and published by Springer. This book was released on 2016-06-15 with total page 166 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this book, Ferdi De Ville and Mattias Vermeiren examine the linkages between the economic crisis in the euro area and the rise of Brazil, India and China (BICs) in the global monetary and trading system. Drawing on the insights of the comparative capitalism literature, the authors show that the latter development has been a key source of the escalation of trade imbalances in the euro area, which are widely seen as an important cause of the financial and economic crisis in the region. By pointing to the external source of these imbalances and the divergent institutional capacity of the euro area countries to deal with the intensified competition associated with the rise of the BICs, De Ville and Vermeiren go beyond the focus on the divergence in unit labor costs as the driving force of these imbalances. As such, this book provides a comprehensive policy critique of the EU’s export-led growth strategy based on declining unit labor costs.
Download or read book Current Account Imbalances in the Euro Area written by Ansgar Hubertus Belke and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the debate on global imbalances, the euro area countries received increasing attention since the outbreak of the financial crisis. While the current account is on balance for the entire area, divergences between individual member states have increased since the introduction of the common currency and are part of the excessive imbalances procedure. This paper explores the determinants of the imbalances by using panel-econometric techniques. The analysis shows that a lack in competitiveness is the main explanation for the external deficits of the countries that are at the heart of the euro area debt crisis. As a deterioration of competitiveness is not feasible for the surplus countries, an asymmetric response is required to reduce the imbalances.
Download or read book Causes and Consequences of Economic Imbalances Comparison of US Asia and Europe written by Ariane Hillig and published by Anchor Academic Publishing (aap_verlag). This book was released on 2014-03 with total page 93 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the past ten years, huge economic imbalances among US-Asia as well as eurozone countries have built up which have led to numerous crisis situations. Thus, the goal of this book is to find out if economic imbalances are sustainable or if they need to be rebalanced? What role do distinct national policies play? The author is going to compare the imbalances of US-China with the intra-euro imbalances of Germany, Spain and Italy. Firstly, the historical development of the economic imbalances is presented in order to point out the unprecedented height of the mentioned imbalances. Furthermore, the author is analyzing the causes of imbalances by presenting the development of the competitiveness, the saving-/investment rates, the financial markets as well as the different national policies. It is shown that distinct national policies were the underlying causes for the development of such high economic imbalances. After having seen the historical development as well as the causes, the author describes the possible costs and benefits of having imbalances as well as the implications of the global financial crisis and the current European crisis. Due to the increasing globalization, the financial crisis spread fast and led to huge losses and decreasing investor’s trust in European countries. This resulted in the European crisis which subsequently could also endanger the global economy. Because of the huge crisis’ impact, traditional and alternative balancing channels are also compared. Despite supporting measures such as restrictive fiscal policies and financial assistance, Europe is still suffering from an economic downturn whereas the US returned to a slow economic recovery. At the end, the author concludes that global imbalances need to be rebalanced in order not to avoid reaching an unsustainable level. The occurring as well as rebalancing of economic imbalances highly depends on distinct national policies. Unless the international coordination and cooperation increases, economic imbalances will continue to occur and will lead to economic crises when reaching an unsustainable level.
Download or read book In Search of a New Equilibrium written by Paolo Canofari and published by Edizioni Nuova Cultura. This book was released on 2015 with total page 212 pages. Available in PDF, EPUB and Kindle. Book excerpt: The book shows that the overcoming of the negative imbalances in the current accounts of the large majority of peripheral Member States in the euro area is mainly due to a recession-driven decrease in import, a monetary wage compression, and below average rates of inflation. This re-equilibrating process thus leads to short-term adjustments, in the sense that it is unable to structurally fill the competitive gaps accumulated inside the euro area during the first decade of its life (1999-2007), owing to the inefficient allocation of the financial flows coming from the European central countries and invested in the European peripheral countries. Contrary to the predictions of the standard macroeconomic models based on the “catching up” mechanism, these financial flows did not adequately foster the productivity of lagged Member States in the euro area. Our proposal is to replace the “invisible hand” of the market with the “visible hand” of a European policy project. We argue that an effective policy initiative would have to combine a programme of European public and private investments with “contractual arrangements” aimed at implementing crucial national reforms. This strategy might provide a short term positive demand shock as well as the long term strengthening of the structural competitiveness of the peripheral Member States without involving direct financial transfers but allowing an intergovernmental co-operation and a trust-building process under the control of the European institutions. Marcello Messori is Professor of Economics at the Department of Political Science, LUISS Guido Carli (Rome) and Director of the LUISS School of European Political Economy (SEP).
Download or read book European Financial Linkages written by International Monetary Fund and published by International Monetary Fund. This book was released on 2010-12-01 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document external investment positions among European Union countries at the start of the financial crisis through the creation of a new database comprising bilateral external financial asset and liabilities, excluding reserve assets and derivatives. While there are some gaps in the data, the overall coverage of reported bilateral net international investment positions (IIPs) appears satisfactory. The dataset provides a richer picture of financial linkages, enabling us to map the financing of Euro area imbalances. Creditor and debtor positions vis-à-vis the rest of the EU have tended to increase between 2000 and 2008, with capital flowing largely from wealthier to catching-up economies. This has in particular resulted in an increased interdependency among Euro Area economies.
Download or read book Europe and Global Imbalances written by Philip R. Lane and published by International Monetary Fund. This book was released on 2007-06 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: Although Europe in the aggregate is a not a major contributor to global current account imbalances, its trade and financial linkages with the rest of the world mean that it will still be affected by a shift in the current configuration of external deficits and surpluses. We assess the macroeconomic impact on Europe of global current account adjustment under alternative scenarios, emphasizing both trade and financial channels. Finally, we consider heterogeneous exposure across individual European economies to external adjustment shocks.
