External Imbalances in EMU. Reforms, Austerity and Funding
DOI:
https://doi.org/10.14666/2194-7759-4-2-006Keywords:
Current account adjustment - EMU - Financial crises and sovereign crises Payment systemAbstract
The paper is about external imbalances in the EMU, from the euro’s inception on. This lapse of time - 2000-14 - has been divided into three periods
each of them defined on the basis of what is deemed to be the-moment-prevailingtheoretical scheme: the competitiveness model, the excess of savings or insufficient
domestic demand, the change of International Investment Position, or BoP funding.
The first period (2000-06) highlights the crucial importance of structural reforms to
address - in normal situations - member states’ competitiveness losses. Consequences
and cures of the 2007-2010 external imbalances have been heavily affected by the
austerity policies. Finally the third episode of the BoP imbalances has been discussed
on the basis of a very peculiar institutional mechanism designed to fund, when the
national banking system needs it, the intra-eurozone transactions, or TARGET2.
Theoretical schemes of the external imbalances episodes are identified on the basis of
undisputable aspects and not according to econometric estimates, as they could bring
to the wrong conclusion. (McKinnon [2013]. The external imbalance topic is one of
the most interesting and complex problems of an incomplete monetary union, such
as the EMU. Indeed, all the papers dealing with “external imbalances in EMU” more
or less implicitly maintain that we have to do with a true monetary union. Still more
important is, according the paper, the interaction between external imbalances and the
EMU policies and institutional framework, which is usually ignored, as though it were
unimportant. This paper aims at detecting the crucial role that policies and institutional
aspects assume in defining causes, consequences and cure of external imbalances. In
a word: in defining the right model of imbalances. This is particularly important when
we talk about monetary union. But this aspect has been utterly overlooked. This paper
aims at filling this lack. In particular we also try to elucidate links between structural
reforms, austerity and current account imbalances.
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