German wages and international current account imbalances

Professor Miguel Leon-Ledesma

It is often said that wage moderation in Germany was the primary cause of the current account imbalances in the euro area that emerged prior to the financial crisis. A new study by the School’s Professor Miguel León-Ledesma and Dr Timo Bettendorf, a Research Economist in the Economic department of the Bundesbank and former PhD student at the School, puts this hypothesis to the test. An article on their research has featured in Research Brief  (2nd Edition, March 2016) published by the Deutsche Bundesbank Eurosystem Research Centre.

Persistent current account deficits can be problematic as, on account of the rise in external debt that they cause, they have the potential to make economies more vulnerable to shocks. Current account deficits arise when aggregate cross-border expenditure on goods and services, together with income payments and transfers sent abroad, exceed corresponding revenue. While many euro-area member states were posting such deficits, especially in the years prior to the financial crisis, Germany was recording high current account surpluses. Some observers even viewed these imbalances as the root cause of the sovereign debt crisis in the euro area…

You can read the full article here:;jsessionid=0000XDKRV6D-6aUMI8jsp7CR2q7:-1

Plus the article was included on the home page of BuBa: