European Imbalances Rémi Bazillier
European Imbalances, Competitiveness and the way forward Bilkent University
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness
Rémi Bazillier 1
1
[email protected] http://remi.bazillier.free.fr Université d’Orléans
Export, Imports and Competitiveness
Implications and Conclusions
Introduction
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances
I I I
The “Obsession for Competitiveness” Core of European economic policies since the crisis It raises very different issues: I
I
I
Outside the EZ: exchange rate policies, devaluation (... and currency crises?) Inside the EZ: internal devaluation? the Troïka approach
But... Is there a competitiveness problem in Europe?
European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
So why Europeans are so much concerned about competitiveness? I
I I
Competitiveness vis à vis the rest of the World vs. Competitiveness between EU members Huge heterogeneity within Europe → The concern in Europe is about European imbalances I
I
Lack of competitiveness of some countries (the periphery counties) is seen as the major cause of such imbalances
What we will do: 1. Come back to the analysis of global imbalances 2. Then try to explain European imbalances (supply or demand) 3. According to that: very different policy implications
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Outline
European Imbalances Rémi Bazillier
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness Implications and Conclusions
Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances
Balance of Payments: Definitions
Rémi Bazillier
I
1. From Global to European Imbalances
Balance of payment accounting:
Imbalances in Theory
CA + KA + ORT = 0 I
(1)
Current account represents net savings of domestic agents:
Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
I
CA = X − M
(2)
CA = (T − G) + (S − I)
(3)
S = I + CA + (G − T )
(4)
One can thought of CA surplus as a way to report consumption to future years (intertemporal consumption decision)
Implications and Conclusions
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory
Two channels of adjustments through trade (goods and services) and finance I
A debtor country will adjust either by exporting more (and/or by importing less) or through an increase in value of its external assets (or a fall in value of its external liabilities)
Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Global Imbalances
European Imbalances Rémi Bazillier
I
South to North flows of capital over past 20 years, esp. to the US
I
US current account deficits have been financed by mostly Japan in the 1980s and early 1990s, oil producing economies and emerging Asia since 1996, and especially China over the recent period
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness
I
Massive net capital flows into the World’s dominant capital market have been referred to as “global imbalances”
I
Dramatic decline in the World interest rate from 5-6% at the beginning of the 1980s to -2% by the end of 2011
I
Bernanke (2005) “savings glut”: increase in the supply of savings by emerging economies, with strong implications for monetary policy
Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
But what about competitiveness?
European Imbalances Rémi Bazillier 1. From Global to European Imbalances
CA = (X − M) = (T − G) + (S − I) = (S − I) − (G − T ) (5) I
Debate about the 3 deficits (trade deficit, fiscal deficit and saving deficit)
I
Trade deficit should be compensated by net capital inflows (for a given level of public deficit, saving and investment)
I
→ Increased depency towards international financial markets (and external shocks)
I
Strong focus on trade competitiveness and/or public deficit to minimize foreign indebtness
Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Real exchange rate and CA adjustment
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances
I
Adjustment of current account in “deficit countries” comes from the adjustment of the real exchange rate (RER)
European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness
I
RER reveals the price competitiveness of a nation
I
Decrease of relative prices improves competitiveness and promotes exports
I
inreases the price of imports
Export, Imports and Competitiveness
Implications and Conclusions
Adjustments of CA through RER movements depend on the exchange rate regime
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances
I
I
With flexible exchange rate, nominal exchange rates depreciation increases the price competitiveness With fixed exchange rate, adjustment is possible only through variation of relative prices in domestic currency I I I
Requires reduced inflation Ultimately, devaluation can be necessary Argentina before 2001, South Asia before 1997, European currencies along the lines of the EMS before 1992 (with small margins of fluctuations...)
European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
The two effects of devaluation
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
1. Effect on Prices import prices ↑ → Terms of trade deteriorate 2. Effect on Quantities ↑ demand for domestic goods abroad ↓ demand for foreign goods at home → ↑ CA balance
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
What about the Eurozone?
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances
I
The real exchange rate reflects various economic context
I
Problems of asymetric shocks
I
No optimal monetary area (Mundell 1960)
I
→ Increased probability of real effective misalignments of the exchange rate (at least for some countries)
European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier
Figure : Real effective misalignments of exchange rate
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Basic problems
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
I
Effective misalignements of exchange rate
I
No capacity to adjust the exchange rate in case of asymetric shocks
I
No mechanisms to reequilibrate European internal imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: Sinn and Valentinyi (2013)
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: Gaulier and Vicard (2012)
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: EEAG (2013)
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: EEAG (2013)
I
Current account deficit and surplus resulted in corresponding changes in the net international asset position
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: EEAG (2013)
European Imbalances Rémi Bazillier
I
The ECB played a growing role in financing current account deficits and capital flight (providing extra refinancing credits)
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: EEAG (2013)
Outline
European Imbalances Rémi Bazillier
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness Implications and Conclusions
Export, Imports and Competitiveness
Implications and Conclusions
Causes of the imbalances
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
I
I
EEAG (2013), The EEAG Report on the European Economy, CESifo, Munich 2013. The introduction of the Euro and the elimination of the exchange rate risk I
Investors have disregarded country-specific bankruptcy risks
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier
Figure : Spread of interest rate in Eurozone countries
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: ECB
Causes of the imbalances
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory
I
I
EEAG (2013), The EEAG Report on the European Economy, CESifo, Munich 2013. The introduction of the Euro and the elimination of the exchange rate risk I
I
Investors have disregarded country-specific bankruptcy risks
Optimistic expectations regarding the rapid converence of the periphery countries I
Blanchard and Giavazzi (2002): Growth expectations reduce savings, which contributes to CA imbalances
Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Causes of the imbalances
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances
I
Consequence: Investment and credit boom in the periphery I
I
Catching-up process (international capital movements from the core to the periphery)
Consequence on current account: I I
↑ Income ⇒ ↑ Imports ↑ Prices ⇒ ↓ Exports (competitiveness) - if no productivity gains
European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Savings and Investments
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: EEAG 2013
The loss of competitiveness?
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: EEAG 2013
The loss of competitiveness?
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances
I
Implications of inflation differentials for current account imbalances: I
It depends on the source of inflation I
I
if strong demand (surplus of investment over savings) → real appreciation → loss of competitiveness If higher productivity growth in the tradable sector → higher wage increases (relative to non-tradable sector). No impact on competitiveness (because of productivity gains)
European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
The loss of competitiveness?
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: EEAG 2013
The loss of competitiveness?
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
I
If price level increases > productivity gains ⇒ loss of competitiveness
I
Following this hypothesis: all European countries (except Austria and Finland) have lost competitiveness towards Germany
2. The causes of European Imbalances Basic explanations
I
Especially true for Southern countries
The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
The loss of competitiveness?
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: EEAG 2013
The loss of competitiveness? I
The same is true for Unit Labor costs Labor costs ULC = Total Real output Figure : Changes in CA and ULC 1999-2007
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: Gaulier and Vicard 2012
Implications
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances
I
I
According to EEAG (2013), demand shocks lead to a loss of competitiveness Solution: I
Increase price-competitiveness I I
I
Exit the Euro and External devaluation Internal devaluation through falling prices in the periphery Internal devaluation through rising price in the core
European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
The Rodrik Political Trilemna
European Imbalances Rémi Bazillier
Figure : The Eurozone Version
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: Rodrik
But are we really talking about competitiveness?
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
I
Narrow definition of competitiveness: I
I
Competitiveness pertains to the ability and performance of a firm, sub-sector or country to sell and supply goods and services in a given market, in relation to the ability and performance of other firms, sub-sectors or countries in the same market. (source: Wikipedia) National competitiveness: concept critized by Krugman (1994) → What really matters is productivity
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier
I
Several implications: I
I
I
I
If we focus on prices (or costs) → focus on prices (and costs) of tradable goods (capacity to export) You should also have a closer look to productivity gains in the tradable sector In order to get an idea on what is going on: look at export performance → Maybe the previous statistics (prices, labor costs) are not disagregated enough to analyze competitiveness (include tradable and non-tradable sectors)
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Current account, exports and imports
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances
I
Gaulier and Vicard (2012) I
I
I
I
Changes in CA balances are correlated with variations in unit labour costs and imports But very weak correlation between exports, CA balances and unit labour costs The demand shock may be a more important factor than the competitiveness shock → If that is true: European policies aiming at improving price competitiveness may be critized
European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Current account, imports and exports
European Imbalances Rémi Bazillier 1. From Global to European Imbalances
Figure : Changes in CA, imports and exports 1999-2007
Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: Gaulier and Vicard 2012
ULC, imports and exports
European Imbalances Rémi Bazillier 1. From Global to European Imbalances
Figure : Changes in ULC, imports and exports 1999-2007
Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: Gaulier and Vicard 2012
European Imbalances
Export performances of peripherical countries I I
Rémi Bazillier
Gaulier and Vicard (2012) Weakness of the link between cost competitiveness and exports I
This is verified also when controling for countries’ geographical and sectoral specialisations
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations
X˙ ijkt = αit + βjt + γkt + ijkt
The loss of competitiveness
(6)
where αit , βjt , γkt are export, import, product fixed effects (with a time dimension t). X˙ ijkt is disaggregated export growth. I → Systematic assessment of dynamics specific to each exporter, importer or product I The “performance component” is the country’s market share growth if its specialisation was completely neutral I 5000 categories of products and exhaustive geographical coverage
Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier
Figure : Shift-share analysis of export performance 1999-2007 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: Gaulier and Vicard 2012
European Imbalances Rémi Bazillier
I
Export performance was negative for France and Finland
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
I
Portugal, Italy, Greece: penalised by their sectoral specialisation (textiles, competition from emerging countries) but country-specific performances close to that of Germany
I
Spain: better performance than Germany (!)
I
In deficit countries (except for France): export performances does not appear to reflect loss in competitiveness
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
How to explain such paradox?
European Imbalances Rémi Bazillier 1. From Global to European Imbalances
I
I
Rise in unit labor costs → no impact on export performance ‘ Breakdown of unit labor costs between value added price (competitiveness) and wage/value added (distribution of value-added between labour and capital) for tradable and non-tradable sector (Felipe and Kumar 2011) P wi PVA (7) ULC = P i i VAi
Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances
Figure : Breakdown of unit labor costs 1999-2007
Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: Gaulier and Vicard 2012
European Imbalances Rémi Bazillier
I
I
I
Rise in unit labor cost mainly explained by price changes in non-tradable sector (with a stronger impact in the deficit countries) Negative contribution made by the wage component in the manufacturing sector:: decrease in the share of the manufacturing industry in value-added in most countries (share of wages in this sector is higher) In Germany: massive transfer of value-added to German shareholders (Askenazy et al. 2011)
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
European Imbalances Rémi Bazillier
I
→ Contrary to what is argued by EEAG, the productivity effect may explain sharper growth in wages and prices in periphery countries (Balassa-Samuelson effect) I
I
Productivity levels gradually move toward the ones of more advanced economies but only in the tradable sector (which explain good export performances despite rising unit labor cost) It pushes inflation up in the economy as a whole due to the equalization of wages across sectors
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Implications and Conclusions
European Imbalances Rémi Bazillier
I
I
I
The gap between unit labor costs of deficit countries and Germany is likely to be explained by price increases in the non-tradable sector ⇒ Demand shock rather than a competitiveness shock in the tradable sector? Euro area financial integration: I
I
I
Inflows of domestic, and especially, foreign capital to the non-tradable sectors of periphery countries It boosts demand for imports and prices of goods and services (primarily in the non-tradable sector) In the tradable sector: I
Very little impact on volumes and prices (because mainly driven by external demand and exogenous international prices)
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Partial re-balancing of current accounts since 2008
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: Auer 2014
Partial re-balancing of current accounts since 2008
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
I I
Contracting demand (and imports) in deficit countries Good export performances I
I
Cost competitiveness in the tradable sector is not a major obstacle for periphery countries Rise of export: combination of good export performances and more favorable sectoral demand (or change in specialization)
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Partial re-balancing of current accounts since 2008
European Imbalances Rémi Bazillier 1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness Export, Imports and Competitiveness
Implications and Conclusions
Source: Auer 2014
What about surplus countries?
European Imbalances Rémi Bazillier
I
Role of surplus countries and consequences of massive outflows from these countries I
I
Exacerbated by problems of regulations of the banking sector in deficit countries These flows contribute to housing bubble and other inappropriate investments
1. From Global to European Imbalances Imbalances in Theory Global Imbalances European imbalances
2. The causes of European Imbalances Basic explanations The loss of competitiveness
I
The macroeconomic imbalance procedure (six-pack legislative act) I
I
Surveillance mechanism that aims to identify potential risks early on, prevent the emergence of harmful macroeconomic imbalances and correct the imbalances that are already in place. The 2014 Alert Mechanism Report (AMR): Germany, Netherlands and Luxembourg → excessive CA surplus (>6% of GDP)
Export, Imports and Competitiveness
Implications and Conclusions
