scholarly journals External Imbalances, Gross Capital Flows, and Sovereign Debt Crises

2020 ◽  
Author(s):  
Sergio de Ferra
Keyword(s):  
Monetary Union ◽  
Current Account ◽  
Capital Flows ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Quantitative Model ◽  
Economic And Monetary Union ◽  
Current Account Imbalances ◽  
Gross Capital Flows ◽  
Account Imbalances

Abstract The experience of the European monetary union has been characterized by current account imbalances, widening gross external positions, and a severe sovereign debt crisis. I argue that institutional features of the European Economic and Monetary Union have contributed to all three. I show in a model that subsidies on holdings of assets issued within the union contribute to current account imbalances, to gross capital flows, and to the severity of the crisis. In a quantitative model with heterogeneous countries, I show that the subsidies account for a substantial fraction of the widening of gross external positions in the euro area by inducing countries with high income and external assets to engage in intermediation of gross capital flows.

scholarly journals Neoliberalism, trade imbalances, and economic policy in the Eurozone crisis

Nova Economia ◽  
2015 ◽  
Vol 25 (spe) ◽  
pp. 749-775 ◽  
Author(s):  
Engelbert Stockhammer ◽  
Collin Constantine ◽  
Severin Reissl
Keyword(s):  
Monetary Policy ◽  
Economic Policy ◽  
Current Account ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Eurozone Crisis ◽  
Fundamental Cause ◽  
Current Account Imbalances ◽  
Fiscal And Monetary Policy ◽  
Account Imbalances

Abstract: This paper analyzes the causes of the Eurozone crisis. In doing so,it carefully surveysauthors from different economic schools of thought. The paper discusses competing explanations for European current account imbalances. Remarkably, opposing views on the relative importance of cost developments and demand developments in explaining current account imbalances can be found in both heterodox and orthodox economics. Regarding the assessment of fiscal and monetary policy there is a clearer polarisation, with heterodox analysis regarding austerity as unhelpful and most of orthodox economics endorsing it. We advocate a post-Keynesian view,which holds that current account imbalances are not a fundamental cause of the sovereign debt crisis. Rather, the economic policy architecture of the Eurozone, which aims at restricting the role of fiscal and monetary policy, is the key to understanding the crisis in Europe.

7. Policy-Making under Economic and Monetary Union Crisis, Change, and Continuity

2017 ◽  
Author(s):  
Dermot Hodson
Keyword(s):  
Monetary Union ◽  
Euro Area ◽  
Sovereign Debt ◽  
Policy Making ◽  
De Novo ◽  
Debt Crisis ◽  
Policy Coordination ◽  
Financial Supervision ◽  
Economic And Monetary Union ◽  
High Stakes

This chapter examines the role of the economic and monetary union (EMU) in the European Union’s macroeconomic policy-making. As of 2015, nineteen members of the euro area have exchanged national currencies for the euro and delegated responsibility for monetary policy and financial supervision to the European Central Bank (ECB). EMU is a high-stakes experiment in new modes of EU policy-making insofar as the governance of the euro area relies on alternatives to the traditional Community method, including policy coordination, intensive transgovernmentalism, and delegation to de novo bodies. The chapter first provides an overview of the origins of the EMU before discussing the launch of the single currency and the sovereign debt crisis. It also considers variations on the Community method, taking into account the ECB and the European Stability Mechanism.

scholarly journals Efficiency of Demand Shocks in Order to Reduce Current Account Imbalances in the EMU

2013 ◽  
Vol 2013 ◽  
pp. 1-17
Author(s):  
Séverine Menguy
Keyword(s):  
Current Account ◽  
Public Debt ◽  
Debt Crisis ◽  
European Countries ◽  
Demand Shock ◽  
Northern European ◽  
Current Account Imbalances ◽  
Openness To Trade ◽  
Southern European Countries ◽  
Account Imbalances

With the current European sovereign public debt crisis and current account imbalances difficulties in the EMU, many papers now underline that the problem of the European construction is its lack of institutional framework and common economic governance necessary to make a monetary union viable. According to these papers, the solution would lie in a stronger economic cooperation, with the Northern European countries contributing to lighten the burden of the Southern debtor countries. In this context, our model shows that a symmetric positive demand shock in the EMU could only slightly reduce the external indebtedness of the Southern European countries but would efficiently reduce their public debt levels. To the contrary, an asymmetric positive demand shock in the creditor Northern European countries (e.g., an increase in German wages) could reduce the current account deficits of the Southern European countries, in particular for countries with the highest openness to trade. Nevertheless, it would worsen the indebtedness levels, and it would also increase the recessionary risks in these countries.

23. Economic and Monetary Union

2019 ◽  
pp. 343-357
Author(s):  
Amy Verdun
Keyword(s):  
Exchange Rates ◽  
Monetary Union ◽  
Sovereign Debt ◽  
Global Financial Crisis ◽  
Debt Crisis ◽  
Economic And Monetary Union ◽  
Sovereign Debt Crisis ◽  
To Come ◽  
Set Up ◽  
The Global Financial Crisis

This chapter provides an introduction to economic and monetary union (EMU). It describes the key components of EMU and what happens when countries join. EMU was the result of decades of collaboration and learning, which have been subdivided here into three periods: 1969–91, taking us from the European Council’s first agreement to set up EMU to Maastricht, when the European Council included EMU in the Treaty on European Union (TEU); 1992–2002, from when plans for EMU were being developed to the irrevocable fixing of exchange rates; and 2002 onwards, once EMU had been established, and euro banknotes and coins were circulating in member states. Next, the chapter reviews various theoretical explanations, both economic and political, accounting for why EMU was created and looks at some criticisms of EMU. Finally, the chapter discusses how EMU has fared under the global financial crisis and the sovereign debt crisis. These crises brought to the fore various imperfections in the design of EMU. This section discusses what changes have been made since 2009 to address those flaws and at what we may expect in the years to come.

Surplus Country Vulnerability to Rebalancing

2020 ◽  
pp. 150-171
Author(s):  
Raphael Reinke ◽  
Nils Redeker ◽  
Stefanie Walter ◽  
Ari Ray
Keyword(s):  
Monetary Union ◽  
Current Account ◽  
Quantitative Measure ◽  
Comparative Perspective ◽  
Eurozone Crisis ◽  
Political Struggle ◽  
Current Account Deficits ◽  
Large Current ◽  
Current Account Imbalances ◽  
Account Imbalances

Surplus countries usually do not attract attention in balance-of-payment crises. However, even though the immediate crisis repercussions mostly center on countries with large current account deficits, surplus countries form an integral part of current account imbalances. They contribute to the underlying problem and could be part of the solution. While in the Eurozone crisis this became especially apparent in negotiations about bailout packages and mutual adjustment measures, such conflicts between surplus countries and deficit states occupy hardly a unique situation. This chapter, therefore, examines the position of surplus countries during the Eurozone crisis in a broader, comparative perspective. Building on the concepts laid out in Chapter 2, it develops a quantitative measure of surplus country vulnerability profiles, which express the relative costs of external and internal adjustment. Specifically, vulnerability profiles of surplus countries in the Eurozone crisis are developed against the backdrop of 272 historical surplus episodes in 61 countries and are specifically compared with those outside the monetary union and with those in the EMS crisis. Similarly to their deficit counterparts, the surplus countries in the Eurozone were in the “misery corner,” where they faced high costs to both external and internal adjustment. The vulnerability profiles indicate why they acquiesced to bailout packages for deficit countries, but only after a difficult and lengthy political struggle.

scholarly journals Macroeconomic Policy Making and Current Account Imbalances in the Euro Area

2021 ◽  
Vol 54 (3) ◽  
pp. 347-373
Author(s):  
Taiki Murai ◽  
Gunther Schnabl
Keyword(s):  
Monetary Policy ◽  
Current Account ◽  
Euro Area ◽  
Debt Crisis ◽  
Bank Lending ◽  
Recent Developments ◽  
Current Account Imbalances ◽  
Fiscal And Monetary Policy ◽  
Account Imbalances

The paper analyses the role of fiscal and monetary policy for the development of the current account imbalances in the euro area, including the most recent developments during the coronavirus crisis. Several financial transmission channels such as international bank lending, changes in TARGET2 balances, international rescue credit and government bond purchases of euro area central banks are identified. It is found that differing fiscal policy stances which have interacted differently with the ECB’s monetary policy have been at roots of first diverging and then converging current account positions in the euro area. Since the European financial and debt crisis, public financing mechanisms and the unconventional monetary of the ECB have contributed to the persistence of intra-euro area current account imbalances.

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