current account imbalances in the monetary union and the great recession: causes and policies

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ID: 163667
2011
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Abstract
Current account imbalances within the eurozone are at the roots of its economic crisis. We argue that, though relevant, emphasis should shift from competitiveness to differential rates of growth of domestic demand as its chief explanatory factor. Euro core countries have experienced a shortage of domestic demand, with wage restraint playing a key role. This has led them to experience a current account surplus, which could not be understood independently of a buoyant domestic demand in the peripheral countries, funded with private debt. As a byproduct of that strong demand, the periphery suffered from wage inflation and a loss of competitiveness. This dual growth pattern is unsustainable as indebtedness cannot go on without any limit. Neither wage cuts nor fiscal austerity in the periphery will help to solve this mess: although trade balance would be restored, it would lead to a negative shock in aggregate demand, threatening their ability to settle debts at due dates.
Reference Key
jorge2011panoeconomicuscurrent Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors ;Uxó Jorge;Paúl Jesús;Febrero Eladio
Journal clinical and experimental pharmacology & physiology
Year 2011
DOI
10.2298/PAN1105571U
URL
http://www.doiserbia.nb.rs/img/doi/1452-595X/2011/1452-595X1105571U.pdf
Keywords
demography great recessioneconomic theory

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