Current account imbalances and monetary union

Introduction

In the world of mostly unrestricted capital flows and increasing integration of financial markets owners of capital are seeking the highest expected rate of return disregarding national boundaries. As individual economies offer various rates of return (what may be determined by a numbers of factors like the labor costs, tax burden, regulatory environment, effective protection of property rights and various economic and political risks) and, at the same time, represent various rates of national saving, some countries become saving importers while others – saving exporters. Assuming that the above mentioned differences persist over longer period of time the saving-investment imbalances may have a sustainable character.

Policy paper prepared for the 3rd EUROFRAME Conference on Economic Policy Issues in the European Union, Berlin, June 2, 2006