Forget China’s surplus. The eurozone’s will be roughly as big (as a share of GDP) for at least a few years, according to International Monetary Fund projections.
A lesson of the past seven years is that current account and fiscal balances are important as indicators of financial stability, including within a monetary union. Before 2008, large deficits run by southern European economies were ignored – with catastrophic consequences. Now, investors rank the vulnerability of emerging markets according to the size of their current account deficits.
The eurozone is running a surplus partly because its economies have fared so disastrously. Imports were slashed as domestic demand collapsed. Surpluses have also been flattered by money repatriated by emigrants who have fled in search of work elsewhere – a particularly significant factor for Portugal.
Germany’s large surplus, meanwhile, attracts global criticism on the grounds that its conservative economic policies are stifling neighbours – although that view is hotly contested in Berlin and Frankfurt.
But the shift by peripheral eurozone countries from large deficits to surpluses has boosted global investor confidence in their stability. “This has been massively important for countries such as Spain – it shows they are no longer reliant on being financed by the rest of the world,” says Gilles Moec, European economist at Deutsche Bank.
Surpluses are also signs that reforms are working – Spain, Ireland and Portugal have seen significant structural, or long-term, moves towards current account surpluses; Italy less so, according to Deutsche Bank research.