Sudden stops in the euro area
The single currency was expected to make balance of payments irrelevant between the euro-area member states. This benign view has been challenged by recent developments, especially as imbalances between euro-area central banks have widened within the TARGET2 settlement system.Current-account developments can be misleading as indicators of financial account developments in countries that receive significant official support. Greece, Ireland, Italy, Portugal and Spain experienced significant private-capital inflows from 2002 to 2007-09, followed by unambiguously massive outflows.We show that such reversals qualify as ‘sudden stops’. Euro-area sudden-stop episodes were clustered in three periods - the global financial crisis, a period following the agreement of the Greek programme and summer 2011. The timeline suggests contagion effects were present.We find evidence of substitution of the private capital flows with public components. In particular, weak banks in distressed countries took up a major share of the central bank refinancing. The steady divergence of intra Eurosystem net balances mirrors this.In the short term, TARGET2 imbalances could be addressed by tightening collateral requirements for central bank liquidity. For the longer term, the evidence that the euro area has been subject to internal balance-of-payment crises should be taken as a strong signal of weakness and as an invitation to reform its structures.
|Date of creation:||Mar 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Rue de la Charité, B-1210 Brussels|
Phone: +32 2 227 4210
Web page: http://www.bruegel.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean Pisani-Ferry & André Sapir & Benedicta Marzinotto, 2010. "Two crises, two responses," Policy Briefs 392, Bruegel.
- Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2004.
"On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects,"
Research Department Publications
4367, Inter-American Development Bank, Research Department.
- Guillermo A. Calvo & Alejandro Izquierdo & Luis-Fernando Mejía, 2004. "On the empirics of Sudden Stops: the relevance of balance-sheet effects," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
- Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2004. "On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects," IDB Publications (Working Papers) 6516, Inter-American Development Bank.
- Guillermo A. Calvo & Alejandro Izquierdo & Luis-Fernando Mejia, 2004. "On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects," NBER Working Papers 10520, National Bureau of Economic Research, Inc.
- Silvia Merler & Jean Pisani-Ferry, 2012. "Who's afraid of sovereign bonds?," Policy Contributions 695, Bruegel.
- Hans-Werner Sinn & Timo Wollmershäuser, 2012.
"Target loans, current account balances and capital flows: the ECB’s rescue facility,"
International Tax and Public Finance,
Springer;International Institute of Public Finance, vol. 19(4), pages 468-508, August.
- Sinn, Hans-Werner & Wollmershäuser, Timo, 2012. "Target loans, current account balances and capital flows: The ECB’s rescue facility," Munich Reprints in Economics 19556, University of Munich, Department of Economics.
- Hans-Werner Sinn & Timo Wollmershaeuser, 2011. "Target Loans, Current Account Balances and Capital Flows: The ECB's Rescue Facility," NBER Working Papers 17626, National Bureau of Economic Research, Inc.
- Hans-Werner Sinn & Timo Wollmershäuser, 2011. "Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility," CESifo Working Paper Series 3500, CESifo Group Munich.
- Whittaker, John, 2011. "Intra-eurosystem debts," MPRA Paper 38368, University Library of Munich, Germany.
- Bindseil, Ulrich & Winkler, Adalbert, 2012. "Dual liquidity crises under alternative monetary frameworks: a financial accounts perspective," Working Paper Series 1478, European Central Bank.
- Ulrich Bindseil & Philipp Johann König, 2012. "TARGET2 and the European Sovereign Debt Crisis," Credit and Capital Markets, Credit and Capital Markets, vol. 45(2), pages 135–174.
- Hans-Werner Sinn, 2012. "The European Balance of Payments Crisis: An Introduction," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 03-10, 02.
- Bertola, Giuseppe & Driffill, John & James, Harold & Sinn, Hans-Werner & Sturm, Jan-Egbert & Valentinyi, Ákos, 2013. "European imbalances," Munich Reprints in Economics 20284, University of Munich, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:bre:polcon:718. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruegel)
If references are entirely missing, you can add them using this form.