- Euro are periphery is running current account surpluses.
- The deficits before the crisis reflected lack of competitiveness.
- The periphery's challenge is much larger than external balances.
This Great Graphic was tweeted by Mark Yusko, which he got from Credit Suisse Research, who drew on Thomson Reuters data. It shows the current account balance of the four main European peripheral countries on a 12-month rolling basis over the last several years.
Before the crisis, they were all running current account deficits. Now there are all experiencing small surpluses. The surplus seems to be, in part, reflection of the compression of domestic demand, which is an economic euphemism for the effect of weak domestic growth and high unemployment.
The surplus is also, in part, a function of the internal devaluation, which is an economic euphemism for disinflation, or outright deflation, that lowers the general domestic price level more than its main trading partners or competitors, which in this case means Germany. The net result is an improved external balance for the periphery. Although European officials did not sufficiently appreciate the importance national external imbalances before the crisis, the fact that the periphery is in surplus does not mean the crisis is over. In fact, although the risks of a break-up of the euro area and national defaults have been dramatically reduced, the European crisis is as intense as ever.