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Current account and fiscal imbalances in the Euro-area: Siamese twins in an asymmetrical currency union

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  • Rosaria Rita canale
  • Ugo Marani

Abstract

In this paper a model connecting fiscal and external imbalances in Euro peripheral countries is presented. The underlying idea is that, after the negative shock of the 2007 financial crisis, the current account position constitutes the main element in originating different behavior of foreign lenders toward single countries. Once the interaction between the two has started, it turns into a never ending self-fulfilling process. For peripheral countries, positive results of fiscal retrenchments and real devaluation to restore stability and stop capital outflows are subject to unlikely conditions that undermine the improvements of public accounts. The choice governments face is therefore, at least in the short run and in recessive conditions, either to restore the equilibrium of public finance, or to counteract the real shocks coming from the crisis. This conclusion suggests to adopt shared policy instruments to contrast centrifugal forces in EMU.

Suggested Citation

  • Rosaria Rita canale & Ugo Marani, 2012. "Current account and fiscal imbalances in the Euro-area: Siamese twins in an asymmetrical currency union," Department of Economics University of Siena 659, Department of Economics, University of Siena.
    • Handle: RePEc:usi:wpaper:659
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    File URL: http://repec.deps.unisi.it/quaderni/659.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ugo Marani, 2014. "Economic monetary union and regional divergences: the legacy of Augusto Graziani," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2014(112), pages 159-171.

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    More about this item

    Keywords

    EMU; sovereign debt crisis; current account imbalances; national policies;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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