Reducing Economic Imbalances in the Euro Area: Some Remarks on the Current Stability Programs, 2011–14

Levy Economics Institute, Working Papers Series No. 694

41 Pages Posted: 8 Nov 2011

See all articles by Gregor Semieniuk

Gregor Semieniuk

SOAS University of London

Achim Truger

Berlin School of Economics and Law; Berlin School of Economics and Law - Institute for International Political Economy (IPE) Berlin

Till van Treeck

Hans-Boeckler-Stiftung - Macroeconomic Policy Institute (IMK)

Date Written: October 8, 2011

Abstract

This paper evaluates whether the 2011 national stability programs (SPs) of the euro area countries are instrumental in achieving economic stability in the European Monetary Union (EMU). In particular, we analyze how the SPs address the double challenge of public deficits and external imbalances. Our analysis rests, first, on the accounting identities of the public, private, and foreign financial balances; and second, on the consideration of all SPs at once rather than separately. We find that conclusions are optimistic regarding GDP growth and fiscal consolidation, while current account rebalancing is neglected. The current SPs reach these conclusions by assuming strong global export markets, entrenched current account imbalances within the EMU as well as the deterioration of private financial balances in the current account deficit countries. By means of our simulations we conclude, on the one hand, that the failure of favorable global macroeconomic developments to materialize may lead to the opposite of the desired stability by exacerbating imbalances in the euro area. On the other hand, given symmetric efforts at rebalancing, the simulation suggests that for surplus countries that reduce their current account, a more expansionary fiscal policy will likely be required to maintain growth rates.

Keywords: Euro Area, Stability Programs, Current Account Imbalances, Fiscal Policy, Stability and Growth Pact

JEL Classification: E10, E17, E62, F42

Suggested Citation

Semieniuk, Gregor and Truger, Achim and van Treeck, Till, Reducing Economic Imbalances in the Euro Area: Some Remarks on the Current Stability Programs, 2011–14 (October 8, 2011). Levy Economics Institute, Working Papers Series No. 694, Available at SSRN: https://ssrn.com/abstract=1956614 or http://dx.doi.org/10.2139/ssrn.1956614

Gregor Semieniuk

SOAS University of London

Thornhaugh St
Russell Square
London, Camden WC1H 0XG
United Kingdom

Achim Truger

Berlin School of Economics and Law ( email )

Badensche Strasse 50-51
Berlin, D-10825
Germany

Berlin School of Economics and Law - Institute for International Political Economy (IPE) Berlin ( email )

Badensche Straße 52
Berlin, 10825
Germany

Till Van Treeck (Contact Author)

Hans-Boeckler-Stiftung - Macroeconomic Policy Institute (IMK) ( email )

Hans-Böckler-Straße 39
40476 Düsseldorf
Germany

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