The Commission’s Report published on Tuesday analyses the current account surpluses in the EU member states. It points out that macroeconomic imbalances in the euro area and in the EU expanded significantly in the run-up to the financial crisis. The imbalances manifested themselves in significant and persistent divergence in the current accounts of EU Member States. Although the current account of the euro area, as a whole, remained broadly balanced, current account deficits deteriorated significantly in some Member States, while surpluses increased substantially in others. From the macroeconomic viewpoint, the deficits in the euro area were thus financed by the surpluses in Germany, the Netherlands, Belgium, Finland, Austria and Luxembourg. Outside the monetary union, Denmark and Sweden also ran important surpluses. A similar accumulation of external imbalances was observed on a global scale. For example, the United States ran persistent current account deficits, while China and Japan registered persistent surpluses. Notwithstanding the intra-euro area rebalancing underway, the current account surpluses and deficits recorded by some EU countries are still high.
What is the current account?
The current account forms part of the balance of payments (together with the capital account and the financial account), which captures transactions between residents of a country and the rest of the world during a given period. The current account surplus or deficit corresponds to exports less imports plus the net income flow (like interest and dividends paid to and received from abroad) and net current transfers (like migrants’ remittances). The current account can also be calculated as the difference between domestic savings and investment. A surplus in the current account means that the country is generating more savings that it is investing domestically or, equivalently, that domestic income exceeds domestic consumption and domestic investment. This means that the country is investing abroad, exporting capital and, as a result, accumulating foreign assets (i.e. credits, FDI, etc.) vis-à-vis the rest of the world.
Which countries are analysed in the report?
The report focuses on eight EU Member States, six euro area Member States – Austria, Belgium, Germany, Finland, the Netherlands and Luxembourg – and two non-euro area countries – Sweden and Denmark. All have had relatively large current account surpluses over the past decade. The average surplus in these countries, as a group, was about 5% of GDP in 2007. Although there has been some reduction since 2008, surpluses remain relatively high. For 2012, the projections indicate an average surplus of 4% of GDP. However, it should be noted that there is a substantial heterogeneity among the eight countries. For example, since the onset of the crisis, surpluses have declined substantially in Austria, Belgium and Finland (the latter actually moved into a moderate deficit in 2011), but have remained high in Germany, Luxembourg and Sweden, and have even increased in Denmark and the Netherlands. The current account surplus as a share of GDP of the Netherlands is currently the largest in the EU, amounting to 9.2% in 2012 according to the Commission’s autumn forecast.
The full report (of 120 pages) can be downloaded here.