Perspectives for CESEE Countries
Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Helene Schuberth
Chapter 8: External rebalancing: is it cyclical or structural?
The credit boom of the early 2000s led to an unprecedented widening of current account ‘imbalances’ globally, but particularly within the European Union (EU) and the euro area. While the euro area maintained a balanced current account overall, large differences arose between its members, with Germany running increasingly large current account surpluses and some countries in the periphery running increasingly large deficits. In the cases of Greece and Portugal, these deficits went above 10 per cent of gross domestic product (GDP). Very large deficits arose also throughout Central and Eastern Europe (CEE). A number of the EU member countries in this region were running current account deficits in excess of 20 per cent of GDP for some years. These deficits were financed by equally large capital inflows. When these inflows stopped suddenly, the deficits could no longer be financed and a quick adjustment became inevitable. The adjustment in the CEE regions was quickest with current account improvements of more than 10 per cent of GDP within less than two years. The adjustment within the euro area was generally slower. On average (unweighted) across EU member countries one observes an improvement of the current account between 2007 and 2013 of 6.3 per cent of GDP.
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