Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/77994 
Year of Publication: 
2006
Series/Report no.: 
Bruegel Working Paper No. 2006/01
Publisher: 
Bruegel, Brussels
Abstract: 
The large and growing US current account deficit has its counterpart in the large and growing current account surpluses in Asia and in the major oil-exporting countries. Although Europe is not part of the problem of global imbalances, Europeans are concerned that a disproportionately large burden of adjustment will fall on Europe. Without more exchange rate flexibility in Asia, adjustment may involve excessive appreciation of European currencies. The euro-area economy is not flexible enough to cope easily with a substantial euro appreciation, which would depress already sluggish growth and exacerbate divergences within the euro area. If EU institutions do not deliver in the face of a sharp appreciation in the euro, Europe’s responses could be more erratic, and there would be a greater risk of a more protectionist response.
Document Type: 
Working Paper
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