The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Europe: Will Europe burst asunder?

Europe’s economies are split in two: the surpluses of the centre and the north, versus the deficits of the UK, France, and the Mediterranean and accession countries. As the imbalances become exacerbated, Charles Dumas asks if there is a get-out clause for the continent’s likely downswing.

 World Economic Forum special report: Contents


Charts

While European imbalances cannot compete with the trans-Pacific main plot in pure scale, they are as large (and dangerous) relative to the economies concerned: which are not small. Europe’s GDP weighed in at just under $12 trillion in 2005, just below the US’s. Dividing the countries by current account surplus or deficits produces roughly equal size “half-Europe” economies in which the surplus countries’ current accounts are 5.5% of GDP and the deficit countries’ 3.3%.

There is regional coherence: surpluses are the central-northern European part of the Eurasian savings glut: Germany, Benelux, Scandinavia, Switzerland/Austria. Deficits surround them: in Britain, Ireland, France, Mediterranean Europe and central-eastern EU “accession” countries. As with the main plot, fixed exchange rate regimes seriously aggravate imbalances in Europe. And as with the main plot, imbalances are getting worse.

Of course a continent with a total overseas balance below 1% of GDP is going to have surplus and deficit countries – not necessarily a danger. Europe’s problem is that:

  • the imbalances are large and growing;

  • the whole continent depends for growth on the deficit countries’ demand growth, vulnerable as in the US;

  • the supply side is much less healthy and responsive than that in the US;

  • financial imbalances reflect labour-cost and other divergences that threaten the integrity of EMU.


You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree