The Challenge of Economic Rebalancing in Europe
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The Challenge of Economic Rebalancing in Europe

Perspectives for CESEE Countries

Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Helene Schuberth

In the long aftermath of the acute global financial crisis of 2008/09, “rebalancing” the economy with new sources of growth and productivity remains a persistent necessity. This book addresses the resulting trade-offs and challenges. These needs, and the corresponding policy challenges, are especially prevalent in Europe, in particular Central, Eastern and South-Eastern Europe. On this issue, this book contributes lessons learned from earlier balance sheet recessions. It also addresses the often overlooked link between macroeconomic imbalances and economic inequality. Further contributions focus on the interaction between monetary policy and financial stability, adding a regional perspective to these important issues.
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Chapter 8: External rebalancing: is it cyclical or structural?

Daniel Gros


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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