This site has been archived on 27/01/17

Navigation path

The website of the Directorate General for Economic and Financial Affairs has moved.

You will find all publications issued after July 2015 on the new web presence.

The "imbalanced balance" and its unravelling: current accounts and bilateral financial flows in the euro area

Author(s): Alexandr Hobza, Stefan Zeugner

The "imbalanced balance" and its unravelling: current accounts and bilateral financial flows in the euro areapdf(961 kB) Choose translations of the previous link 

Summary for non-specialistspdf(26 kB) Choose translations of the previous link 

Based on a new database of bilateral financial flows among euro area countries and their major world partners, this paper explores the role of financial links in the accumulation and then adjustment of current account imbalances in the euro area. The data show that the geography of financial flows can differ quite markedly from trade flow patterns and suggest that the nexus between surpluses in the 'core' with deficits in the periphery went along financial rather than trade interlinkages. In particular, the data document the dominant role of 'core' countries in financing the euro area periphery's current account deficits before the financial crisis. In addition to direct financing, France and the UK acted as important intermediaries of financial flows from elsewhere, particularly outside of the euro area. Most of this financing took the form of debt instruments and increased the vulnerability of the recipient countries. In 2009/10, gross flows in the euro area contracted, while the net flows remained broadly unchanged. France became the periphery's main financier in 2009 and substituted the withdrawn flows from surplus countries, mainly Germany. Only when France reduced its exposure in a hasty asset withdrawal during 2011, the periphery had to rely on large ECB-mediated liabilities in order to refinance its liabilities.

(European Economy. Economic Papers 520. July 2014. Brussels. PDF. 32pp. Tab. Graph. Ann. Bibliogr. Free.)

KC-AI-14-520-EN-N (online)KC-AI-14-520-EN-C (print)
ISBN 978-92-79-35169-3 (online)ISBN 978-92-79-36114-2 (print)
doi: 10.2765/70188 (online)doi: 10.2765/77754 (print)

JEL classification: F32, F34, F36, F41

Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.

Additional tools

  • Print version 
  • Decrease text 
  • Increase text