Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105967
Authors: 
Semieniuk, Gregor
Year of Publication: 
2012
Series/Report no.: 
IMK Working Paper 101
Abstract: 
Using the financial balances accounting identity, we analyze whether there is evidence in recent national accounting data and the projections of the Stability Programmes (SP), that the focus on fiscal deficits to the exclusion of other economic variables risks further deterioration of the euro area economy's growth rate. We find that, in the past given the focus on shrinking public deficits, growth forecasts have almost always deteriorated from one SP to the next, while the macroeconomic situation is not markedly different from the beginning of the euro area crisis, 2010. We conclude that continued fiscal austerity and disregard of current account imbalances is likely to lead to further deteriorating data that fail to live up to current growth forecasts. This will lead in turn to further growth forecast downward revision in the next SP batch. A simple simulation of a deterioration in the external economic environment indicates that a symmetric rebalancing of the current account imbalances might be more feasible than the current, asymmetric rebalancing.
Subjects: 
Euro area crisis
fiscal deficit
financial balances accounting identities
macroeconomics imbalances
austerity
stability programmes
JEL: 
E21
E22
E23
E44
E50
Document Type: 
Working Paper

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