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Monetary Integration, Fiscal Divergence and Current Account Imbalances in Europe


  • Schnabl Gunther

    () (University of Leipzig, Department of Economics and Business Administration, Leipzig, Germany)


The paper scrutinizes the role of diverging fiscal policy stances for diverging current account positions in Europe with a focus on the European Monetary Union (EMU). In a heterogeneous monetary union fiscal policy has the task to absorb asymmetric shocks to ensure the efficacy of the one-size monetary policy. It is argued that since the early years of the European Monetary Union divergent fiscal policies combined with monetary expansion constituted a major determinant of current account divergence within the euro area, which finally led into the European debt and financial crisis. Panel regressions reveal a significant impact of fiscal policies on current account positions, which to a large extent are independent from the exchange rate regime and turn out to be contingent on monetary and fiscal policy mix. Based on the findings economic policy recommendations are presented.

Suggested Citation

  • Schnabl Gunther, 2018. "Monetary Integration, Fiscal Divergence and Current Account Imbalances in Europe," The Economists' Voice, De Gruyter, vol. 15(1), pages 1-16, December.
  • Handle: RePEc:bpj:evoice:v:15:y:2018:i:1:p:16:n:7

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    More about this item


    current account imbalances; Europe; European financial and debt crisis; European Monetary Union; exchange rate adjustment; fiscal policy; macroeconomic policy coordination;

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission


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