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Reducing Economic Imbalances in the Euro Area: Some Remarks on the Current Stability Programs, 2011–14

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  • Gregor Semieniuk
  • Till van Treeck
  • Achim Truger

Abstract

This paper evaluates whether the 2011 national stability programs (SPs) of the euro area countries are instrumental in achieving economic stability in the European Monetary Union (EMU). In particular, we analyze how the SPs address the double challenge of public deficits and external imbalances. Our analysis rests, first, on the accounting identities of the public, private, and foreign financial balances; and second, on the consideration of all SPs at once rather than separately. We find that conclusions are optimistic regarding GDP growth and fiscal consolidation, while current account rebalancing is neglected. The current SPs reach these conclusions by assuming strong global export markets, entrenched current account imbalances within the EMU as well as the deterioration of private financial balances in the current account deficit countries. By means of our simulations we conclude, on the one hand, that the failure of favorable global macroeconomic developments to materialize may lead to the opposite of the desired stability by exacerbating imbalances in the euro area. On the other hand, given symmetric efforts at rebalancing, the simulation suggests that for surplus countries that reduce their current account, a more expansionary fiscal policy will likely be required to maintain growth rates.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_694.

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Date of creation: Oct 2011
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Handle: RePEc:lev:wrkpap:wp_694

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Web page: http://www.levyinstitute.org

Related research

Keywords: Euro Area; Stability Programs; Current Account Imbalances; Fiscal Policy; Stability and Growth Pact;

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  1. Wynne Godley & Dimitri B. Papadimitriou & Greg Hannsgen & Gennaro Zezza, 2007. "The U.S. Economy: Is There a Way Out of the Woods?," Economics Strategic Analysis Archive sa_nov_07, Levy Economics Institute.
  2. Gregor Semieniuk & Till van Treeck & Achim Truger, 2011. "Nothing learned from the crisis? Some remarks on the Stability Programmes 2011-2014 of the Euro area governments," IMK Working Paper 11-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
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Cited by:
  1. Eugenio Caverzasi & Antoine Godin, 2013. "Stock-flow Consistent Modeling through the Ages," Economics Working Paper Archive wp_745, Levy Economics Institute.

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