Euro area represents broad risk spectrum

The euro area is interesting because the economies of the 16 member states are quite diverse while representing a broad risk spectrum.

For example, the Spanish economy has grown due to a strong increase in domestic demand and, at least until recently, a buoyant construction sector. Germany is completely different as it relies on export markets while its domestic demand has been weak. As you would imagine, Spain has run a large current account deficit, while Germany has run a huge current account surplus. Because of the strong influence of Germany, the euro area has run a current account surplus from 2001 to 2007, although this deteriorated to a deficit in 2008 and 2009. There is a tendency for us to attribute a current ...