Capital flows into vulnerable countries: official and private funding trends

With regard to the macroeconomic performance of the euro area since the beginning of the economic and financial crisis, two remarkably different perspectives are notable. On the one hand, the euro area has shown relative stability in terms of the euro's external value and its aggregate current account balance with the rest of the world. (29) On the other hand, numerous Member States witnessed major falls in economic output and employment during this period, as well as suffering large rises in sovereign financing rates on the back of a near-ubiquitous fiscal deterioration across the euro area. Against this background of the euro area's relative external stability in times of such macroeconomic upheaval, this section investigates current account and financial investment flows in the euro area since the start of the crisis. It aims to answer two main questions: Given the current account imbalances and their nascent correction in the euro area, what have been the financial counterparts to these current account flows? And what role have institutional arrangements in the euro area played in supporting current account positions and preventing their disorderly unwinding?