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The Ease of Trade Imbalances Within the Euro Area After the 2008 Recession

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  • Marcus Scheiblecker

    (WIFO)

Abstract

Right from the start of the European currency union, trade imbalances could be observed in the current accounts and trade balances of the euro countries. The business cycle upswing reaching into 2008 and the strong inflow of cheap money led to a strong economic expansion especially in the periphery of the euro area. Traditionally abundant wage increases in these countries persisted. In the more export oriented economies in the core of the euro area, however, hardly any wage increases could be observed due to the lacklustre internal demand. As a consequence, those countries gained further in competitiveness in comparison to the periphery. This led to an increase in foreign trade imbalances. With the sharp drop of economic activity in 2008 and the swift dry-up of cheap financial means this process was interrupted. Since, labour unit costs of Spain, Portugal and Greece evolved much more muted than the average of the euro area. As a result, imports of those countries stagnated while exports increased at the same time which led to a nearly balanced external trade in 2012.

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Bibliographic Info

Paper provided by WIFO in its series WIFO Working Papers with number 453.

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Length: 14 pages
Date of creation: 29 Aug 2013
Date of revision:
Handle: RePEc:wfo:wpaper:y:2013:i:453

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Keywords: External imbalances Euro area Current account;

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  1. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
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