2014-04-22 - Socio Economic Review 2014 - Full text and cover - FINAL

Graph 2.8 – Current Account as a % of GDP for selected Eurozone member-states,
2001-2008
15
10
5
0
-5
-10
-15
-20
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Eurostat (2014).
Liberalised capital and financial markets facilitated lending by financial institutions
within the core to financial institutions and states in the ‘periphery’- sometimes
through intermediaries - and in this way allowed the perpetuation of trade
imbalances within the Eurozone, with the associated distinction between a current
account surplus ‘core’ and a current account deficit ‘periphery’ (see Graph 2.8).
The European Commission (2012: 11) has recognised the emergence of current
account imbalances within the Eurozone – and indeed the European Union – as a
feature of the 2000s, noting that France, Britain and, to a lesser extent, Germany
played an important role in intermediating financial flows, sometimes from non-
EU countries, towards the deficit countries, contributing to ‘credit-driven booms,
reductions in savings and excessive investment in non-productive activities in the
periphery, and excessive risk concentration in the financial systems of the core
countries’.
The architects of the political economy of European Monetary Union (EMU) were
focused on what they saw as the dangers of public debt and deficits: the European
treaties prohibit bailouts (hence the structure of the financing given the programme
countries), prohibit the ECB purchasing government debt in the primary market
(i.e monetising debt) while the Stability and Growth Pact (SGP) was established to
provide a framework to control public debt and deficits levels.
The ECB’s sole mandate is to maintain price stability, rather than achieve full
employment. The structure of the EMU created by the European treaties closely
2. From Crisis to Viable Future Pathway 19