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European Integration in a Global Economy

European Integration in a Global Economy

CESEE and the Impact of China and Russia

Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald

The expert contributors focus on global imbalances and accompanying policy challenges, competitiveness and trade, the sustainability of current growth strategies, and banking and financial stability in the light of the global economic and financial crisis. They provide a multi-disciplinary assessment, combining the views of high-ranking central bankers, policymakers, commercial bankers and academics, and demonstrate that a broad view of European economic integration is crucial given that spillovers and contagion were major issues of the recent economic crisis.

Chapter 5: Global imbalances, capital flows and the crisis

Gian Maria Milesi- Ferretti

Subjects: economics and finance, international economics, money and banking


This chapter discusses developments in global imbalances as well as imbalances in the euro area. It builds on Lane and Milesi-Ferretti (2011) and Chen et al. (2012). It starts by presenting some stylized facts on global imbalances and imbalances within the euro area, and then turns to a discussion of factors that help explain their behaviour. Figure 5.1 shows the evolution of ‘global imbalances’, showing current account surpluses and deficits in the main countries and regions. In particular, the chart divides European countries in two groups: one comprising current account surplus countries in the European Union (in particular Germany, the Netherlands, Denmark and Sweden) as well as Switzerland, and the other comprising deficit countries (Greece, Ireland, Italy, Portugal, Spain, the UK and countries in Central and Eastern Europe). Current account balances are scaled by world GDP. According to this metric, imbalances reached a peak in 2007–08, and have since shrunk. One important factor explaining the contraction of imbalances in 2009 was the collapse in commodity prices – particularly oil – in the period following the collapse of Lehman Brothers. This decline implied an improvement in current account balances in deficit countries – almost all of which are oil importers – and a corresponding decline in surpluses in oil-exporting countries. Commodity prices including oil rebounded in 2010, and so did the surpluses in oil exporters, but the contraction in imbalances has persisted. Despite the contraction in current account deficits and surpluses, the overall creditor and debtor positions have continued to increase even after the crisis (see Figure 5.2).

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