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On the brink? Intra-euro area imbalances and the sustainability of foreign debt

Finn Körner and Holger Zemanek

No 109, Working Papers from University of Leipzig, Faculty of Economics and Management Science

Abstract: In this paper we study the intra-euro area imbalances based on a dynamic general equilibrium model. We show that European financial integration and the introduction of the euro might have contributed to the development of imbalances. Interest rate convergence following EMU accession led to net foreign debt positions, which prove difficult to reverse. Simulation results for the euro area suggest that current account imbalances and foreign debt positions of today's crisis countries have significantly diverged from a sustainable path. Increasing investment in the EMU core and productivity in crisis countries may permit a return to sustainable foreign debt levels and correct macroeconomic imbalances in the euro area.

Keywords: current account imbalances; euro area; foreign debt; sustainability; general equilibrium model (search for similar items in EconPapers)
JEL-codes: E44 F32 F34 G15 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-eec, nep-mac and nep-opm
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https://www.econstor.eu/bitstream/10419/60098/1/719263379.pdf (application/pdf)

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Journal Article: On the Brink? Intra-euro Area Imbalances and the Sustainability of Foreign Debt (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:leiwps:109

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