The paper scrutinizes the reasons for the European debt crisis, the implications for TARGET2 imbalances and options for surplus liquidity absorption within an asymmetric EMU. It is argued that starting from the turn of the millennium diverging fiscal policy paths and diverging unit labour costs...

We analyse the newly updated Stability Programmes of the Euro area governments by applying the simple accounting identity by which the financial balances of the government, the private sector and the foreign sector always sum to zero. While the focus of the old Stability and Growth Pact was...

The financial and economic crisis in the Euro area has revealed a number of important flaws in the economic policy framework in Europe. On the one hand, the imbalances, which have dominated European development since the introduction of the euro, are not sustainable; and this is more serious in a...

In this paper, we first present the state and the development of the European capital and current account imbalances. We demonstrate how large the heterogeneity among European countries is and that clustering here different types of countries is possible, but that it leads to different groupings...