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The Author’s View concerning imbalances

The economy of each Member State is shaped by its history and can only be understood in this context. This observatory presents a selection of charts which give us an impression of the economic situation and development of each Member State.

The choice of the Scoreboard indicators of the European Commission “focuses on the most relevant dimensions of macroeconomic imbalances and competitiveness losses, with a particular emphasis on the smooth functioning of the euro area.”*) These external imbalances between Member States within the common market are mainly caused by the trade with goods and services. We observe them as imbalances between exports and imports.

In the public view these imbalances are generally seen as a result of the relative competitiveness of the Member States. However, studying the development of these imbalances, I found some strong correlations concerning the developments of exports or imports, which may correct this point of view. Here You can find he results of the corresponding tests: Correlations

  • The first test shows the importance of the european domestic demand for the national exports. The development of exports of a Member State in the common market strongly depends on the development of domestic demand in the other Member States. In 23 Member States there exists a highly significant correlation and in 2 further Member States a sufficient significant correlation (correlation 1a). The influence of the development of Unit Labour Costs on the development of national exports is remarkably weaker (correlation 1b).
  • On the other hand the developments of all national imports strongly depend on the developments of national domestic demand (correlation 2).
  • These two correlations leed to the conclusion, that the national external imbalances of trade within the common market reflect – besides the influence of labour cost disparities (correlation 3b) – imbalances between the developments of national and common domestic demand (correlation 3a).
  • In most Member States these national external imbalances of trade dominate their Financial Account, that is their national capital flow in and out (correlation 4, Dia 8.5 and Dia 8.E). The accumulation of this Financial Account over the years amount to the Net International Investment Position, which is the central imbalance indicator of the European Commissions Scoreboard (see Dia 9.2 and Dia 9.A).

And if there are significant imbalances? –  Even increasing negative imbalances of this Net International Investment Position or other indicators are not ipso facto harmful or problematic. This depends on the real use of the imported capital in the Member States. Dia 9.3 gives an instructive picture, which compares for any Member State the yearly proportions of fixed net capital formation with the inflow of foreign capital.

Which macroeconomic imbalances within the Common Market are harmful? And for whom are they a problem? - These questions are the  starting points for a common economic policy. Reflections and discussions about these questions in the European public are important preconditions of a common EU economic policy. My European Economic Equilibrium Observatory (EEEO) should support this European debate.
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*) COMMISSION STAFF WORKING PAPER: SCOREBOARD FOR THE SURVEILLANCE OF MACROECONOMIC IMBALANCES, SEC(2011) 1361 final.

 

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