The Relevance of Trade Imbalances within the European Monetary Union

Abstract

The inception of the single currency was expected to make balance of payments irrelevant among Euro area members. This is why during the first ten years of EMU both academic and political debates disregarded the widening of trade imbalances among its members. The eruption of the financial crisis in 2008 changed the attitude towards this issue and the persistence of trade imbalances became source of growing concern. Owing to a substantial lack of clarity in the debate, the aim of this research is to fill the gaps of this discussion and answer the question whether, and eventually why, trade imbalances should matter even in the European Monetary Union.