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Current Account Imbalances in the Monetary Union and the Great Recession: Causes and Policies

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Author Info

  • Jorge Uxó

    ()
    (University of Castilla – La Mancha, Spain)

  • Jesús Paúl

    ()
    (CEU San Pablo University, Spain)

  • Eladio Febrero

    ()
    (University of Castilla – La Mancha, Spain)

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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.

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    File URL: http://www.panoeconomicus.rs/casopis/2011_5/01%20Jorge%20Uxo.pdf
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    Bibliographic Info

    Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

    Volume (Year): 58 (2011)
    Issue (Month): 5 (December)
    Pages: 571-592

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    Handle: RePEc:voj:journl:v:58:y:2011:i:5:p:571-592

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    Web page: http://www.panoeconomicus.rs/

    Related research

    Keywords: Euro area; Current account imbalances; Wage policy; Great recession;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Eckhard Hein & Achim Truger, 2009. "How to Fight (or Not to Fight) a Slowdown," Challenge, M.E. Sharpe, Inc., vol. 52(3), pages 52-75, May.
    2. Eckhard Hein & Achim Truger & Till van Treeck, 2011. "The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective," IMK Working Paper 9-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    3. Jorge Uxó González & Jesús Paúl Gutiérrez, 2011. "The reform of the economic governance of the Eurozone: macroeconomic supervision and coordination," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 7(4/5/6), pages 205-225.
    4. Jesus Felipe & Utsav Kumar, 2011. "Unit Labor Costs in the Eurozone: The Competitiveness Debate Again," Economics Working Paper Archive wp_651, Levy Economics Institute.
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    Cited by:
    1. Constantinos Alexiou & Joseph G. Nellis, 2013. "Challenging the Raison d’etre of Internal Devaluation in the Context of the Greek Economy," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(6), pages 813-836, December.
    2. Eckhard Hein, 2012. "The Crisis of Finance-dominated Capitalism in the Euro Area: Deficiencies in the Economic Policy Architecture and Deflationary Stagnation Policies," Economics Working Paper Archive wp_734, Levy Economics Institute.
    3. Hein, Eckhard, 2012. "Finance-dominated capitalism, re-distribution and the financial and economic crises: A European perspective," IPE Working Papers 14/2012, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

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