Discutants: Francisco Serranito (sénior), Djeneba Drame (junior)

Abstract :

This paper revisits the crucial issue of global imbalances and focuses on the determinants of the current account gaps between eurozone Member States. We conduct robust estimations of the current account balances for a panel of ten euro area economies and construct a measure that allows us to diagnose why some countries have started to diverge from the eurozone mean in the last two decades. Our findings show evidence of remaining differences in countries’ economic development, meaning that real macroeconomic convergence has failed in the zone. Price and cost competitiveness, as well as fiscal balances, have also participated in this growing macroeconomic divergence. Overall, while the European authorities cannot influence the part of the gaps due to demographic factors, the role of fiscal redistribution and investment at the euro area level could help achieve macroeconomic convergence..