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

Rosaria Rita Canale and Ugo Marani

International Economics and Economic Policy, 2015, vol. 12, issue 2, 189-203

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

Keywords: Eurozone; Sovereign debt crisis; Current account imbalances; National policies; E61; E65; F33 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:kap:iecepo:v:12:y:2015:i:2:p:189-203

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DOI: 10.1007/s10368-014-0268-9

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