Bundesbank: eurozone imbalances a danger to the bloc

BERLIN, July 19 (BestGrowthStock) – Economic imbalances in
peripheral euro-zone countries pose risks to the bloc as a whole
and the onus is on those states to adjust their economies rather
than look to others to change, the Bundesbank said on Monday.

In its July monthly report, the German central bank said the
economic and financial crisis had shown up unsustainable foreign
trade imbalances in some states on the euro zone periphery,
which showed current account deficits.

These imbalances were a source of vulnerability not only for
the ‘deficit’ states concerned.

“Given the transmission effects via the interconnected
financial markets of the currency union, they constitute a
source of danger for other member countries and thereby for the
whole currency union,” the Bundesbank wrote in the report.

“They also burden the implementation of a stability
orientated uniform monetary policy,” it said.

The Bundesbank released its report shortly after Moody’s
downgraded Ireland’s sovereign bond rating by one notch to Aa2,
highlighting the strain peripheral euro zone states are under.

Euro-zone monetary policy was aimed at securing price
stability for the currency bloc as a whole, the Bundesbank said.

“That means, that it generally should not take consideration
of the economic problems in individual states,” the bank added.

The Bundesbank said those euro zone states with current
account deficits needed to correct their imbalances urgently.

“There must be measures at the centre of a reform agenda
concerning this matter that bring domestic demand and the
production possibilities closer together,” it said, adding that
budget consolidation measures were also required.

“Only with these will the financial markets’ lost confidence
be restored,” the bank said.
Germany, which runs a current account surplus and relies
heavily on exports to drive growth, has come under pressure from
some other countries — including France — to boost domestic
demand to help address the economic imbalances in the euro zone.

The Bundesbank said the onus was on deficit countries to
make corrections.

“Compensation measures from euro zone countries with current
account surpluses by means of stimulating their domestic demand,
for example with an expansive wage and fiscal policy, would be
neither appropriate for the problem nor would they provide much
relief given the minor transmission effect to deficit states.”

(Editing by Toby Chopra)

Bundesbank: eurozone imbalances a danger to the bloc