Current Account Balances and Structural Adjustment in the Euro Area

51 Pages Posted: 21 Apr 2010  

Holger Zemanek

University of Leipzig - Institute for Economic Policy

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Gunther Schnabl

University of Leipzig - Institute for Economic Policy

Date Written: March 1, 2010

Abstract

In the past decade, a set of euro area countries has accumulated large current account deficits. After a brief relaxation of the euro area internal imbalances in the wake of the financial crisis, it appears as if this pattern arises anew when times normalize again and Germany still sticks to export-led growth. This issue has been labeled one of the most challenging economic policy issues for Europe inter alia by the European Commission and some other players on the EU level. In this paper, we analyze the role of private restructuring and structural reforms for the urgently needed sustainable readjustment of intra-euro area current account balances. A panel regression reveals a significant impact of structural reforms on intra-euro area current account balances. This implies that in particular structural reforms and wage restraint in notorious current account and budget deficit countries such as Greece are highly suitable to support long-term economic stability in Europe.

Keywords: Structural reforms, current account balances, euro area, dynamic panel estimation, interaction term

JEL Classification: E24, F15, F16, F32

Suggested Citation

Zemanek, Holger and Belke, Ansgar Hubertus and Schnabl, Gunther, Current Account Balances and Structural Adjustment in the Euro Area (March 1, 2010). Ruhr Economic Paper No. 176. Available at SSRN: https://ssrn.com/abstract=1593469 or http://dx.doi.org/10.2139/ssrn.1593469

Holger Zemanek

University of Leipzig - Institute for Economic Policy ( email )

Institute for Economic Policy
Grimmaische Strasse 12
Leipzig, 40109
Germany

Ansgar Hubertus Belke (Contact Author)

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Gunther Schnabl

University of Leipzig - Institute for Economic Policy ( email )

Institute for Economic Policy
Grimmaische Straße 12
Leipzig, 04109
Germany

HOME PAGE: http://www.wifa.uni-leipzig.de/iwp/

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