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Current Account Imbalances in the Monetary Union and the Great Recession: Causes and Policies

Listed author(s):
  • Jorge Uxó


    (University of Castilla – La Mancha, Spain)

  • Jesús Paúl


    (CEU San Pablo University, Spain)

  • Eladio Febrero


    (University of Castilla – La Mancha, Spain)

Registered author(s):

    Current account imbalances within the eurozone are at the roots of its economic crisis. We argue that, though relevant, emphasis should shift from competitiveness to differential rates of growth of domestic demand as its chief explanatory factor. Euro core countries have experienced a shortage of domestic demand, with wage restraint playing a key role. This has led them to experience a current account surplus, which could not be understood independently of a buoyant domestic demand in the peripheral countries, funded with private debt. As a byproduct of that strong demand, the periphery suffered from wage inflation and a loss of competitiveness. This dual growth pattern is unsustainable as indebtedness cannot go on without any limit. Neither wage cuts nor fiscal austerity in the periphery will help to solve this mess: although trade balance would be restored, it would lead to a negative shock in aggregate demand, threatening their ability to settle debts at due dates.

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    Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

    Volume (Year): 58 (2011)
    Issue (Month): 5 (December)
    Pages: 571-592

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    Handle: RePEc:voj:journl:v:58:y:2011:i:5:p:571-592
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    1. Eckhard Hein & Achim Truger & Till van Treeck, 2011. "The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective," IMK Working Paper 9-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. Jesus Felipe & Utsav Kumar, 2014. "Unit labor costs in the eurozone: the competitiveness debate again," Review of Keynesian Economics, Edward Elgar Publishing, vol. 2(4), pages 490-507, October.
    3. Jorge Uxó González & Jesús Paúl Gutiérrez, 2011. "The reform of the economic governance of the Eurozone: macroeconomic supervision and coordination," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 7(4/5/6), pages 205-225.
    4. Eckhard Hein & Achim Truger, 2009. "How to Fight (or Not to Fight) a Slowdown," Challenge, M.E. Sharpe, Inc., vol. 52(3), pages 52-75, May.
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