Where do European imbalances come from?

March 1st, 2017

Dette européenne

The creation of the Economic and Monetary Union and the adoption of the single currency have enable to remove the fees and the exchange risks. This should create an investment dynamic encouraging trades between countries in the euro area. Northern countries, looking for an attractive remuneration, had to invest their capital in the Southern countries, in order to enable them to grow. European policies were looking to create a convergence process between countries of the zone. However, nowadays, the results are disappointing: the euro area has not manage to reduce the intra-euro area gap.

Nowadays, the disparities between the economic situations of the member countries of the euro area make it difficult to create a cohesion on a European scale. Northern countries are trying to impose a rigor that the South find difficult to integrate in its budgetary policy. The economic, political and historical differences between the member states prevent the application of a common economic policy agreed by every country. For instance, the aging German society fears the effect of the inflation that would reduce savings and purchasing power, while deficit countries would not be against a little more inflation in order to ease their debt. The European Union countries need to find a balance to reduce the significant differences between the South and the North.

Too much savings in the North, too much debt in the South

Europe is suffering from a deepening of internal imbalances with a divergence of competitiveness between the member states. Every year since 2007, Germany has recorded a trade surplus reaching more than 6% of de the GDP, a value corresponding to the maximum limit allowed by the European Commission. For many years, it has held almost all surpluses (more than 70% of the EU28 surpluses in November 2016). However, the surpluses of some mechanically make the deficit of others. The deficit countries have thus financed the German growth, creating massive surpluses that benefited very little of Europe as a whole. In 2016, Germany made 59% of its exports to European Union countries, while only 34% of its imports came from these countries, what thus shows the imbalance of German trade with the rest of Europe.

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Maeva Courtois – Consultant in Trading room at Quanteam

Illustration déséquilibres européens