Macroeconomic Imbalances in the Euro Area: Symptom or cause of the crisis?

Daniel Gros

CEPS Papers from Centre for European Policy Studies

Abstract: Lax financial conditions can foster credit booms. The global credit boom of the last decade led to large capital flows across the world, including large movements of resources from the Northern countries of the euro area towards the Southern part. Since the start of the crisis and more markedly after 2009, these flows have suddenly stopped, creating severe adjustment pressures. This paper argues that, at this point, the common monetary policy can only try to mitigate the unavoidable adjustment by maintaining overall financial stability. The challenge is to strike a delicate balance between providing liquidity for solvent institutions while keeping the overall pressure on for a rapid correction of the imbalances.

Pages: 12 pages
Date: 2012-04
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (48)

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