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Policy Options to Durably Resolve Euro Area Imbalances

  • Yvan Guillemette
  • David Turner

A simple econometric framework is presented linking current account balances of euro area countries to intra and extra euro area competitiveness, cyclical positions, fiscal positions and the oil price. The framework is then used to cyclically-adjust observed current account balances and illustrate the scale of the additional adjustments to competitiveness and/or fiscal balances required in the euro area periphery to bring structural current account balances to levels compatible with sustainable net external debt levels. In Spain and Portugal, cost competitiveness relative to the rest of the euro area would need to improve by about 30%, and by more than twice that in Greece. In peripheral countries, a combination of structural reforms to boost productivity and enhance the flexibility of labour markets, ambitious fiscal consolidation and reductions in labour taxes could substantially facilitate the rebalancing process and reduce the extent to which the burden of adjustment is reliant on further prolonged demand weakness. Surplus and/or strong competitiveness countries could help by likewise making labour and product markets more flexible, accepting above-normal inflation for an extended period and boosting demand, perhaps through reduced fiscal austerity. Options de politiques publiques pour réduire durablement les déséquilibres de la zone euro Un cadre économétrique simple est développé qui lie la balance au compte courant des pays de la zone euro à la compétitivité intra et extra euro, aux positions cycliques, aux positions budgétaires et au prix du pétrole. Ce cadre est ensuite utilisé pour corriger les balances courantes observées pour le cycle économique et pour illustrer la taille des ajustements additionnels à la compétitivité et/ou aux budgets nécessaires dans la périphérie de la zone euro pour amener les comptes courants structurels à des balances compatibles avec des niveaux durables de dette extérieure nette. L’Espagne et le Portugal nécessiteraient une amélioration de leur compétitivité par rapport au reste de la zone euro de l’ordre de 30%, et la Grèce de plus de deux fois cela. Dans la périphérie de la zone euro, une combinaison de réformes structurelles pour stimuler la productivité et améliorer la flexibilité du marché du travail, de consolidation budgétaire ambitieuse et d’allègement de la taxation du travail pourrait faciliter substantiellement le processus de rebalancement et réduire la mesure dans laquelle le poids de l’ajustement repose sur une faiblesse de la demande prolongée. Les pays en surplus ou avec une forte compétitivité pourraient aider en rendant eux aussi les marchés du travail et des produits plus flexibles, en acceptant une inflation plus élevée que normal sur une longue période et en stimulant la demande, peut-être en atténuant l’austérité fiscale.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1035.

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Date of creation: 20 Mar 2013
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Handle: RePEc:oec:ecoaaa:1035-en
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