The sustainability of current account imbalances in the euro area

In this paper we study the factors that determine the sustainability of current

account deficits in the euro area (EMU-12) and its relationship to the crisis.

First, we estimate the foreign trade equations, corroborating the determinant

role of the income-elasticity. After, we estimate economic growth restricted by

the balance of payments (Thirlwall) and we compare it with the effective growth

in each country. Only Spain, Greece and Portugal maintained, between 2000

and 2007, a growth higher than that consistent with the foreign restriction.

Although non-sustainable, their deficits are different: with structural roots in

Greece and Portugal.

Isidro Frías Pinedo
María del Rosario Díaz Vázquez
Ana Iglesias Casal
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