Current Account Imbalances in the Southern Euro Area

By Florence Jaumotte, Piyaporn Sodsriwiboon. Social Science Research Network, 2010

178 citations recorded by the source corpus.

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.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/e66e671069f91b090aa4d55f885ba4a54437c814

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1. N. Holinski
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Citations in the corpus

• Persistent Macroeconomic Imbalances in the Euro Area: Causes and Consequences (2012, methodology): “In addition, Jaumotte and Sodsriwiboon (2010) provide convincing evidence that the increased availability of external funding because of financial liberalization and financial development in South also have contributed to South’s increased foreign borrowing.”