OECD Economics Department Working Papers

ISSN :: 1815-1973 (en ligne)
DOI :: 10.1787/18151973

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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

Resolving and Avoiding Unsustainable Imbalances in the Euro Area

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Auteur(s):

Sebastian Barnes¹

Author Affiliations

1: OCDE, France

Date de publication

09 déc 2010

Bibliographic information

N°:: 827

Pages

DOI

10.1787/5km33sv3jn8s-en

Cacher / Voir l'abstract

Some euro area countries accumulated large and persistent external imbalances during the upswing, revealing important weaknesses in the macroeconomic management of the monetary union. Greece, Ireland, Portugal and Spain ran large current account deficits by historical standards, while Finland, Germany and the Netherlands had substantial surpluses. Some of these deficits and surpluses were larger than appear justified by economic fundamentals. The massive debt accumulation made deficit economies vulnerable to shocks, complicated their recovery from the world financial crisis, and has challenged the stability of the euro area. In some countries, fiscal policy in the past decade failed to counter and sometimes aggravated these pressures. External imbalances were driven by underlying domestic economic, financial and sometimes fiscal imbalances. These were the result of a combination of a wide range of country-specific shocks and insufficient macroeconomic and financial stabilisation. Movements in real interest rates in some countries contributed to diverging borrowing and saving patterns, which fuelled credit booms and a weakening of competitiveness in some deficit countries. Weaknesses in financial regulation and over-optimistic growth expectations encouraged excessive risk-taking in both deficit and surplus countries. Harmful imbalances can be characterised by a misallocation of resources and increased vulnerability. When the financial crisis hit, some deficit countries faced the combined problems of a sharp contraction in private demand, an impaired financial system and weak public finances. Unwinding large imbalances, in both deficit and surplus countries, will be a prolonged and difficult process. A new and cross-cutting approach to economic and financial management in the euro area is required to ensure balanced development in the future. While the shocks that led to this build-up of imbalances may not recur, similar pressures are likely to arise within the monetary union in the future. Macroeconomic, financial and fiscal management should be strengthened in an integrated way, alongside structural reforms. This should aim to achieve the differentiation necessary to improve stabilisation of national economies, while ensuring that the euro area as a whole is protected from unsustainable developments in individual countries. Important legislative changes are underway at EU level to improve the surveillance of imbalances and to help ensure that the necessary corrective action is undertaken where risks emerge. This working paper relates to the 2010 OECD Economic Survey of the Euro Area (www.oecd.org/eco/surveys/euroarea).

Mots-clés:: monetary union, credit booms, competitiveness, imbalances, current account, euro area

Classification JEL:

F32: International Economics / International Finance / Current Account Adjustment; Short-Term Capital Movements
F36: International Economics / International Finance / Financial Aspects of Economic Integration
F41: International Economics / Macroeconomic Aspects of International Trade and Finance / Open Economy Macroeconomics