Raphael Auer is, on Voxeu, surprised about the rapid decline of the current account deficits of the periphery countries of the Eurozone (see also here and here). But he is wrong about the reasons for this decline. The ‘rebalancing’ is mainly caused by a very deep economic slump – and not so much by an increase of productivity.Real-World Economics Review Blog
The real cause of the rapid ‘rebalancing’ of the periphery current accounts
Merijn Knibbe
1 comment:
To be strictly accurate, the purpose of imposing a recession on the periphery is not primarily to improve “productivity”. The purpose is to improve the periphery’s COMPETITIVENESS, and the latter can be improved even if there is no productivity gain in the periphery relative to the core: the competitiveness improvement comes from internal devaluation.
If the Financial Times is any guide, that improved competitiveness seems to be coming, though obviously at horrendous social cost. An editorial article in the FT on 8th May entitled “Greek Tragedy” claimed that according to the IMF, Greece has “closed two thirds of the competitiveness gap that opened up after it joined the Euro.”
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