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Volume 53, May/June 2018, Number 3 · pp. 155-158


On Current Account Imbalances

Gustav A. Horn

The European Economic and Monetary Union (EMU) was initially conceived under the more or less explicit assumption that market forces would avoid the appearance of bigger imbalances in trade and current accounts between member states. The corresponding political assumption was that there was no need to intervene and correct such imbalances. Under the orthodox paradigm that dominated at the time of the creation of the EMU, a deficit was only possible if a country had lost its competitiveness. In practice, however, the opposite occurred, and historically large imbalances appeared in the first decade of the euro.


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