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Capital Flows in the Euro Area

Philip R. Lane
Trinity College Dublin and CEPR

IIIS Discussion Paper No. 426

We investigate the behaviour of gross capital flows and net capital flows for euro area member countries. We highlight the extraordinary boom-bust cycles in both gross flows and net flows since 2003. We also show that the reversal in net capital flows during the crisis has been very costly in terms of macroeconomic and financial outcomes for the high-deficiit countries. Finally, we describe the reforms that can improve macro-financial stability across the euro area.


Non- technical summary
This paper reviews the growth record of the member countries of the euro area and assesses the outlook for future economic performance. We describe how the external and fiscal adjustment challenges facing the euro periphery amplify the growth risks facing these countries. We address how growth prospects can be improved by shifts in the macroeconomic policy mix, carefully-timed structural reforms, debt restructuring and the resolution of the existential crisis facing the euro area.

JEL Codes: E42, F32, F41



Last updated 28 August 2014 by IIIS (Email).