During the crisis, the peripheral countries of the euro area quickly corrected their external account deficits, while the core countries did nothing to reduce their surpluses. The Italian current account balance moved from -3,5% of GDP in 2010 to +1,5% in 2014 and the Spanish one moved from -9,6% in 2007 to +0,5%. Germany, on the other hand, has kept it substantially unchanged at a level (7,1%) which is excessive both according to the most elementary economic principles and on the basis of European alarm thresholds. The so-called six-pack, in fact, stipulates that a surplus cannot exceed 6% of GDP (an already high number). It is true that Germany's surplus with the rest of the euro area has been canceled (from 2,9% of GDP in the first half of 2007), but through lower exports to other euro countries rather than via increased imports, which instead decreased .
To settle the accounts, the deficit countries had to recover price competitiveness and reduce living standards, generating deflation and a reduction in demand that were not compensated, as would have been logical and appropriate, by expansionary policies in the surplus countries, above all Germany . Result: weaker euro area domestic demand, lower employment and lower incomes. In short, less well-being for everyone, including the Germans. And deflation in the entire area: to combat it, the ECB must take measures to remedy it with measures that alone will not be enough. A framework of fragility and instability. To get out of it, we need a stimulus to domestic demand through budgetary policy. Stimulus that the Juncker plan does not guarantee. Therefore, a more lively dynamics of prices, consumption and investments are needed in the surplus countries, in particular in Germany, in order to rebalance the weight of the adjustment and limit its negative effects, which by now are feeling the effects of the German economy itself.
Attachments: CSC Note n.3-2015.pdf
