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Current account and fiscal imbalances in the Eurozone: Siamese twins in an asymmetrical currency union

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  • Rosaria Canale

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  • Ugo Marani

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Abstract

The paper aims at connecting fiscal and external imbalances in the Eurozone. After the shock of the 2007 financial crisis, the current account position was the root cause of discriminatory behavior of foreign lenders towards single countries. Once the interaction between the current account and fiscal imbalances started, the only way out to restore stability and stem capital outflows was to implement fiscal retrenchments and real devaluation. The choice governments of peripheral countries face is therefore, at least in the short run and in recessive conditions, either to restore the equilibrium to their public finance, or to counteract the real shocks coming from the crisis. This suggests to consider that the stability of the Eurozone could be realized at expenses of a lower output in peripheral countries. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Rosaria Canale & Ugo Marani, 2015. "Current account and fiscal imbalances in the Eurozone: Siamese twins in an asymmetrical currency union," International Economics and Economic Policy, Springer, vol. 12(2), pages 189-203, June.
  • Handle: RePEc:kap:iecepo:v:12:y:2015:i:2:p:189-203
    DOI: 10.1007/s10368-014-0268-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Eurozone; Sovereign debt crisis; Current account imbalances; National policies; E61; E65; F33;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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