№266. Macroeconomic Imbalances in the Euro Area: Symptom or cause of the crisis?
№266. Macroeconomic Imbalances in the Euro Area: Symptom or cause of the crisis?

Author(s): Daniel Gros
Subject(s): Supranational / Global Economy, Economic policy, Comparative politics, Financial Markets
Published by: CEPS Centre for European Policy Studies
Keywords: Macroeconomic imbalances; Euro Area; Credit boom; capital flows; financial stability;
Summary/Abstract: Lax financial conditions can foster credit booms. The global credit boom of the last decade led to larg ecapital flows across the world, including large movements of resources from the Northern countries of the euro area towards the Southern part. Since the start of the crisis and more markedly after 2009, these flows have suddenly stopped, creating severe adjustment pressures. At this point, the common monetary policy can only try to mitigate the unavoidable adjustment by maintaining overall financial stability. The challenge is to strike a delicate balance between providing liquidity for solvent institutions while keeping the overall pressure on for a rapid correction of the imbalances.

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