Tuesday, November 8, 2011

Trade Imbalances Within The Eurozone And The Debt Problems

This article by Paul Krugman provides some additional data on the problem at the heart of the eurozone crisis. Trade imbalances within the eurozone produced current account deficits that totaled $183 billion in Italy, Spain, Portugal and Greece. Germany, on the other hand, has a $182 billion current account surplus which represents 5% of its GDP. Most of the debt in the four deficit states is public debt that is partially caused by trade deficits which reduced their economic growth. A union of economically competitive states like Germany, with economically weaker states was bound to lead to problems. The trade imbalance would have been corrected by currency depreciation relative to the mark, if each state had its own currency.

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