Current account deficits
Discussions about the problems of the southern euro area Member States usually focus on public finances. However, large current account deficits of these countries, due to a lack of competitive power, play an equally important role. A current account deficit arises if a country imports more than it exports. DNB research has shown that the composition of exports and the income development of the trading partner can make a significant contribution to export growth.
The study was based on exports data on euro area countries and their 20 most important trading partners during 1980-2010. Three euro area zones are distinguished: the core countries (Belgium-Luxemburg, Germany, France, the Netherlands, Austria) the northern periphery (Finland, Ireland) and the southern periphery (Greece, Italy, Portugal, and Spain).
The analysis shows that exports to the core countries and the northern periphery as a share of all exports from the southern periphery did not increase after the introduction of the euro. By contrast, mutual trade within the southern periphery did increase. The exports of most core countries to emerging markets in Eastern Europe, Asia and South America are far larger than exports from the southern periphery to those emerging markets (see the Chart). Emerging economies typically have high income growth, which benefits those euro countries that target their exports to emerging countries.