European Council on Foreign Relations

€ view: good and bad news on current account imbalances

I spent the second half of last week at the conference of the Institute for New Economic Thinking (INET) in Berlin. The central policy topic was – of course – again the euro-crisis. While the vast majority of speakers agreed that the crisis was much more than a simple fiscal solvency crisis (in contrast to what sometimes has been discussed in some German media), there was disagreement on the question how the underlying balance-of-payment crisis could be solved. Interestingly, there were already vastly different claims on what really is going on at the moment in terms of adjustment in the euro periphery. While one speaker claimed that “unit labour costs in Spain continue to rise more quickly than in Germany” another speaker claimed that “in the 2.5 years since the onset of the crisis, Spain has regained already a third of the competitiveness lost in the decade before”.

In fact, the

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