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The paper looks at the debt crisis through the lenses of the Euro area accounts. It starts from the traditional analysis of the sectoral’s financial balances (savings minus investments), describing their “rotation” during the boom, the crisis and the recovery. It then moves on to emphasise the regional differences in sectoral balances, distinguishing two regional groupings: external surplus and deficit countries. The boom period is mostly marked by a pronounced swing into deficit of the private sector in deficit countries, which contrasts with the fairly stable private sector surpluses in surplus countries, resulting in a widening gap in external balances between the two groups. However, the abrupt reversal in private sector financial balances in the deficit group after Lehman hardly changed the current account surplus/deficit configuration of these two groupings over 2008–2011, but instead was largely compensated by a larger gap in government deficits. Taking another perspective, the pre-crisis gradual widening gap in external balances between these two groupings can be seen as originating largely from increasingly large differentials in national saving, rather than in national investment. This increasing national saving differential mostly reflected increased saving differentials of the corporate sector up to 2007 (rather than households’ or governments’) that have reversed only to a limited extent since then. This in turn resulted from the emergence of a considerable gap in gross operating margin between the two regional groupings, with much higher margins in surplus countries. This reflected the faster increase in wages in the deficit countries compared to surplus countries, in excess of what would be justified by productivity and/or growth differentials. Our analysis suggests that the very large wage gap (in the order of 15–17 %) that had emerged would need to be reduced as a precondition to macro-rebalancing. The paper highlights the mechanism by which the free circulation of savings in a (financially integrated) monetary union distorts price/wage structures, in the absence of fully integrated goods and labour markets. This contrasts with a more optimistic interpretation that suggested that greater circulation of savings within the euro area was a welcome consequence of increased financial integration, celebrating the end of the Feldstein-Horioka puzzle. The distortion of the relative price/wage structure, away from initial equilibrium, is in itself not a difficulty in a common currency area, unless the lack of price/wage flexibility prevents, once capital inflows stop or even starts reversing, a rapid return of prices and wages to their original equilibrium level.
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See also the article “The financial crisis in the light of the euro area accounts” (ECB 2011a).
Sectoral accounts differ to business accounting in a number of ways, and most notably as the latter does not systematically distinguish transactions from others flows (although one observes an increasing emphasis for distinguishing between income and comprehensive income in business accounting).
Including non-profit institutions servicing households.
ESA 95 formally defines revenue and expenditure for the government sector by reference to resources and uses of the government sector.
See a glossary on national accounts terms at: http://www.ecb.europa.eu/stats/pdf/eaa/EAA_Glossary.pdf?3f0aa8a9cd633211f9b30a47738e3d69.
For a methodological description of the EAA, see http://www.ecb.europa.eu/stats/pdf/eaa/eas_note_ch3.pdf?766369a89fd9e1c4d1ff32f25a54eea1.
If, for example, the net lending of households increases because they consume less goods and save more, this results, in the first instance, in higher inventories of non-financial corporations, which in turn need to be financed. Thus, the higher household sector saving provides the required financing to non-financial corporations. This can then subsequently prompt adjustments where non-financial corporations cut costs, for example, in turn reducing household revenue, and thus reducing the funds that households have available for non-financial corporations.
Including non-profit institutions servicing households.
The net lending/net borrowing of a sector is the balance of its capital account, which measures the excess of saving and net capital transfers received over capital investments (net lending), or vice versa (net borrowing). It is also the balance of the financial accounts, which measures the difference between transactions in financial assets and transactions in liabilities. See also the Box.
See Box 5 “Recent developments in stock-building” in (ECB 2009).
The net lending excludes however, holding gains/losses or other write-offs on assets.
Defined here as the sum of all non-government sectors (thus including public corporations).
This type of presentation was first used in “The financial crisis in the light of euro area accounts” (ECB 2011a). The grouping aggregates are obtained by simple aggregation of national data, while maintaining additivity to euro area totals, by way of allocating any difference relative to the euro area totals (stemming mostly from intra-euro area balance of payments asymmetries) to each grouping on a pro rata basis. No further consolidation is conducted (which is broadly appropriate as the EAA are mainly compiled on a non-consolidated basis).
Greece, Cyprus, Malta, Slovakia, Slovenia and Estonia data are included over the whole period studied, despite their having joined the euro area only progressively (‘fixed composition’ presentation).
It should be noted that this fundamental accounting constraint does not, in itself, indicate the direction of causality, i.e. whether the government deficits resulted from increased private surpluses/saving or, alternatively, whether the latter reacted to increased government deficits.
Some countries in the external deficit group (such as Spain or Ireland), however, recorded government surpluses at the height of the boom. Their current account deficits therefore reflected private sector dissaving and lagging competitiveness.
It is customary to assume that firms borrow or raise equity so to fund investment (‘K’) from households (directly or indirectly) that save for future consumption. But an alternative growth model is when firms generate sufficient retained earnings to fund themselves (in aggregate) all the required investment. In this case, household wealth (and therefore their capacity to fund future consumption) still increases: not via their own net saving, but via holding gains on equity held (stemming from the net saving of corporates). Note that these two growth models would be reflected in the national accounts identically if the accounting rules were to assign the retained earnings of corporates as investors/households’ income, which is currently not the case.
See Box 4 “Target2 balances of national central banks in the euro area” in (ECB 2011b).
Savings of all sectors (as a percentage of GDP), rather that the savings rate of households (saving to their disposable income).
Weighted by GDP.
Even if the higher nominal wage increases in the external deficit group reflected, merely or mostly, higher domestic inflation, this nonetheless caused a deterioration in competitiveness, and thus additional pressures on the margins of businesses exposed to international competitors (including those in the other grouping of the euro area).
Zurück zum Zitat Bindseil U, Cour-Thimann P, König P (2012) Target2 and cross-border interbank payments during the financial crisis, CESifo Forum Special Issue, January Bindseil U, Cour-Thimann P, König P (2012) Target2 and cross-border interbank payments during the financial crisis, CESifo Forum Special Issue, January
Zurück zum Zitat Blanchard OJ, Giavazzi F (2002) Current account deficits in the euro area: the end of the Feldstein Horioka puzzle. In: Perry G, Brainard W (eds) Brookings papers on economic activity (September) Blanchard OJ, Giavazzi F (2002) Current account deficits in the euro area: the end of the Feldstein Horioka puzzle. In: Perry G, Brainard W (eds) Brookings papers on economic activity (September)
Zurück zum Zitat ECB (2009) Recent developments in stockbuilding. Box 5 in the Monthly Bulletin, May, pp 56–60 ECB (2009) Recent developments in stockbuilding. Box 5 in the Monthly Bulletin, May, pp 56–60
Zurück zum Zitat ECB (2011a) The financial crisis in the light of the euro area accounts. Article in the Monthly Bulletin, October, pp 99–120 ECB (2011a) The financial crisis in the light of the euro area accounts. Article in the Monthly Bulletin, October, pp 99–120
Zurück zum Zitat ECB (2011b) Target2 balances of national central banks in the euro area. Box 4 in the Monthly Bulletin, October, pp 35–40 ECB (2011b) Target2 balances of national central banks in the euro area. Box 4 in the Monthly Bulletin, October, pp 35–40
Zurück zum Zitat ECB (2011c) A sectoral perspective of imbalances in the euro area. Box 3 in the Monthly Bulletin, October, pp 37–42 ECB (2011c) A sectoral perspective of imbalances in the euro area. Box 3 in the Monthly Bulletin, October, pp 37–42
Zurück zum Zitat Feldstein MS, Horioka CY (1980) Domestic saving and international capital flows. Econ J 90:314–329 CrossRef Feldstein MS, Horioka CY (1980) Domestic saving and international capital flows. Econ J 90:314–329 CrossRef
Zurück zum Zitat Winkler B (2010) Cross-checking and the flow of funds. In: Papademos L, Stark J (eds) Enhancing Monetary Analysis (Frankfurt am Main: European Central Bank), pp 355–380 Winkler B (2010) Cross-checking and the flow of funds. In: Papademos L, Stark J (eds) Enhancing Monetary Analysis (Frankfurt am Main: European Central Bank), pp 355–380
- In Need of Sectoral and Regional Rebalancing in the Euro Area: A Euro Area Sectoral Accounts (Flow-of-Funds) Perspective
Philippe de Rougemont
- Springer Milan
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