Macroeconomic Imbalances in

Transcription

1 Macroeconomic Imbalances in the Euro Area Jürgen von Hagen Rome, 21 May 2011

2 Europe: Growing imbalances within, balanced without Figure 1A: Current Account Balances IE EL FR FI IT SE AT UK EU-15 PT EURO Figure 1B: Current Account Balances B ES DE NL EL PT ES IT IE FR UK EURO- 12 EU-15 FI B AT NL DE SE

3 Macroeconomic Imbalances in the Euro Area 16 Figure 2A: Current Account Surplus Countries Percentage of GDP Germany Netherlands Luxembourg Finland Belgium Denmark Sweden Austria

4 Macroeconomic Imbalances in the Euro Area 6 Figure 2B: Current Account Deficit Countries 4 2 Percentage of GDP France Greece Ireland Italy Portugal Spain UK

5 Trade Accounts as Proxies for Current Account Balances Since intra euro area current account data do not exist, we use bilateral trade data to construct balances vis à vis the euro area and the rest of the world. Global trade and current account balances are highly correlated except for Ireland (income balance). They follow similar movements over time.

6 Intra and extra euro area balances 3 Figure 4A: Average Trade Balance % of GDP Intra EU Extra EU Total Intra EMU Extra EMU Average balances have been of opposite sign since the mid 1990s!

7 Intra and extra euro area balances 12 Figure 4B: Standard Deviation of Trade Balances 10 8 % of GDP Intra EU Extra EU Total Intra EMU Extra EMU Imbalances are larger within the euro area than with the rest of the world.

8 Intra and extra euro area balances 20,00 Figure 5A: Euro Surplus Countries 15,00 trade balance in % of GDP 10,00 5,00 0,00 5,00 10,00 15,00 BeLux intra BeLux extra Germany intra Germany extra Ireland intra Ireland extra Netherlands intra Netherlands extra Surpluses within the euro area do not imply overall surpluses

9 Intra and extra euro area balances 10,00 Figure 5B: Euro Deficit Countries tradebalance in % of GDP 5,00 0,00 5,00 10,00 15,00 Greece intra Greece extra Spain intra Spain extra Portugal intra Portugal extra Austria intra Austria extra France intra France extra and surpluses with the rest of the world do not imply surpluses with the euro area

10 Intra and extra euro area balances The correlation between intra and extra balances is generally weak.

11 Intra and extra euro area balances

12 Intra and extra euro area balances Conclusion Intra euro area current account balances have little information value for extra balances and vice versa. Global current account balances are not helpful to judge macroeconomic imbalances in the euro area. Therefore, policies adressing global imbalances are unlikely to address current account imbalances within the euro area properly.

13 Determinants of current account balances Current account balances reflect the difference between a country s savings and investment. Within the euro area, the follow differences in per capita GDP: Relatively poor countries import capital, relatively rich countries export capital. This is economically efficient and desirable. It is the main force of convergence among euroarea states.

14 Determinants of current account balances Empirically, the contribution of government deficits to current account imbalances in the euro area is very small. Empirically, the contribution of changes in competitiveness to current account imbalances in the euro area is negligible. Even for Portugal and Greece, competitiveness explains at most one percent of the c.a. deficit. NOTE: Competitiveness and real exchange rates determine the level of exports, at which a given current account deficit materializes. Therefore, policies addressing competitiveness cannot do anything to reduce current account imbalances.

15 Competitiveness 180 Figure 6: Relative Unit Labor Cost Titolo asse A B DK FI F D GR IE I NL PT E SE UK Changes in competitiveness have remained small for most countries. Even for Sweden, Portugal and Greece, most changes occurred before 1995

16 Determinants of current account balances Current account balances with the rest of the world are driven by the same determinants as current account balances within the euro area. But the effect of relative per capita GDP has increased for c.a.b. within the euro area and stayed the same for c.a.b with the rest of the world. This is an indication of increased financial market integration due to the common currency. This is desirable and a sign of success of the euro. Note: The effect of competitiveness has not changed with the euro.

17 Conclusions Without data for intra euro area current accounts, policies addressing imbalances are likely to be misguided. Intra euro area capital flows promise to promote convergence. Where they have adverse macro economic effects, these should be addressed by improved financial market regulation. Competitiveness contributes little to explaining imbalances. Policies addressing competitiveness are not promising to reduce imbalances.

18 Conclusions Limiting current account imbalances in the euro area is equivalent to limiting capital flows. This requires restrictions on capital mobility. Moving in that direction would destroy one of the cornerstones of the Single European Market.