Many of the emerging market economies in Europe are presently running current account deficits which are quite high relative to any global or historical standard and are fundamentally unsustainable. This includes the three poorer European Union (EU) members of the old Europe (Greece, Portugal, and Spain), many of the EU’s new member states (largely the former transition economies which have joined since 2004), most of those non-EU members in south-east Europe, and a number of the CIS economies in eastern Europe and the Caucasus. The unweighted average current account deficit for this group has more than doubled from under four percent of GDP in 2003 to well over eight percent in 2007. This trend is significantly different than what has evolved in many of the world’s other emerging markets; these other economies have generally been running current account surpluses. This paper documents this development, describes the underlying factors that have brought it about, assesses the underlying vulnerability that has been created, and discusses the implications of this development for other emerging markets and global financial stability more generally. In addition, how these risks have evolved since the appearance of the global credit crisis beginning in the summer of 2007 is examined.
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Length: 34 pages Date of creation: Jun 2008 Date of revision: Publication status: Published in UNECE Discussion Paper Series, No. 2008_2 Handle: RePEc:ece:dispap:2008_2
Find related papers by JEL classification: F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe
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