International payments imbalances and the prospective role of the euro

Abstract

In today’s world scenario of global imbalances, the single currency area in Europe ( Euroland) is a new player. How does the euro economy navigate in the midst of international payments imbalances? And what can Euroland do to contribute to correct global payments imbalances in such a way as to play a role within the broader scope to rebalance the course of world economic development? Current world developments may turn against Euroland and force it to facing considerable challenges. Indeed virtually all scenarios of international payments’rebalancing’ currently considered entail problematical consequences for Euroland, and a more resolute willingness to actively play a global role seems not only to be wished for, but a condition for the success of the EMU project. Adopting a proper system of macroeconomic governance in a truly integrated single market, as warranted by its new currency, is one of those structural reforms that should be given priority in the interest of Europe. In any event, a new international identity of the euro requires that Euroland develop improved means of internal macroeconomic governance aimed at securing domestic demand growth and accept responsibility for global growth to be shared with the US. This is the tough economic and political challenge ahead.