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Euro area imbalances: How much could an expansion in the North help the South?

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  • Oliver Picek
  • Enno Schröder

Abstract

We run simulations of current account rebalancing scenarios in the Euro Area and the European Union based on a closed multi-country input-output model. The spillover effects of domestic demand booms in the Northern European surplus countries are non-negligible, but not large. While they cannot on their own create a meaningful upswing in the former Southern European deficit countries, they could be an important element thereof. In particular, a Northern expansion can create the necessary policy space for a domestic demand-driven expansion in the European South by relaxing the balance of payments constraint. Then, a coordinated asymmetric expansion in the Euro Area could alleviate the unemployment crisis in the European South.

Suggested Citation

  • Oliver Picek & Enno Schröder, 2017. "Euro area imbalances: How much could an expansion in the North help the South?," IMK Working Paper 180-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:180-2017
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    Cited by:

    1. Oliver Picek, 2020. "Spillover Effects From Next Generation EU," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(5), pages 325-331, September.
    2. Jan Priewe, 2018. "A time bomb for the Euro? Understanding Germany's current account surplus," IMK Studies 59-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    3. Schilirò, Daniele, 2017. "Imbalances and policies in the Eurozone," MPRA Paper 82847, University Library of Munich, Germany.
    4. Jan Priewe, 2018. "Germany in fundamental macroeconomic disequilibrium - the external surplus," FMM Working Paper 32-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Priscila Espinosa & Daniel Aparicio-Pérez & Emili Tortosa-Ausina, 2023. "On the Impact of Next Generation EU Funds: A Regional Synthetic Control Method Approach," Working Papers 2023/07, Economics Department, Universitat Jaume I, Castellón (Spain).

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    More about this item

    Keywords

    Current Account Imbalances; Current Account Rebalancing; Euro Crisis; Euro Zone; Domestic Demand Expansion; European Union;
    All these keywords.

    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F15 - International Economics - - Trade - - - Economic Integration

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