The current debate on the European crisis has highlighted the role of fiscal imbalances in explaining the turmoil that has dominated Europe in the past few years. This paper adopts a different point of view by suggesting that intra-European payments imbalances are crucial for the survival of the...

Low international competitiveness of a set of euro area countries, which have become evident by large current account deficits and rising risk premiums on government bonds, is one of the most challenging economic policy issues for Europe. We analyse the role of private restructuring and public...

This paper explains the build-up and reversal of euro area macroeconomic imbalances by considering the interaction between the underlying income distribution in each country and EMU-induced financial liberalization. The argument is that the sharp increase in money supply since the early 1990s...

In the decade following the introduction of the euro, many Southern EMU members experienced sizeable capital inflows. We document how, instead of contributing to convergence, these flows mainly fueled growth of the nontradable sectors. We rationalize these developments using a tractable...

The growth in TARGET balances after 2009 has given rise to intense academic and public debate. Our paper offers a systematic exposition of the necessary conditions for TARGET balances to emerge and provides a clear link to monetary policy. We show that large TARGET balances can only arise with...

This paper contributes to the discussion on the European current account imbalances by analysing the intra-European trends since 1990 based on the theory of optimum currency areas. The authors show that German unification was the origin of not only the 1992-93 EMS crisis but also rising...