On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates

Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of New York
Current Issues in Economics and Finance
The balance of payments crisis in the euro area periphery
Matthew Higgins
Thomas Klitgaard
Abstract

Countries in the euro area periphery borrowed heavily from abroad in the years leading up to the sovereign debt crisis, largely to finance increased consumption and housing investment. When the crisis hit in 2010, capital flight by private investors forced these countries to bring domestic spending back into line with domestic incomes—the same adjustment required of countries facing a typical balance of payments crisis. Nevertheless, adjustment to the pullback of private capital was not as harsh as might have been expected, owing to the workings of the euro area’s system for managing cross-border payment imbalances between regional commercial banks. This system, known as Target2, offset much of the capital flight with credits extended collectively by euro area central banks to central banks in the periphery.


Download Full text
Cite this item
Matthew Higgins & Thomas Klitgaard, "The balance of payments crisis in the euro area periphery" , Federal Reserve Bank of New York, Current Issues in Economics and Finance, volume 20, number 2, 2014.
More from this series
JEL Classification:
Subject headings:
Keywords: euro area; financial account; balance of payments crisis; Target2
For corrections, contact Amy Farber ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal