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The Trader's Guide to the Euro Area: Economic Indicators, the ECB and the Euro Crisis by David J. Powell

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Chapter 8

Euro Crisis

The crisis that came to the fore at the end of 2009 in the euro area may be best described as a balance-of-payments crisis created by the region’s fixed-exchange-rate regime. The balance of payments is the sum of the current account and the capital and financial account. The current account is the sum of the trade balance and income from foreign investments. The capital and financial account primarily consists of direct and portfolio investment from abroad. This balance-of-payments explanation has been advanced by Paul Krugman of Princeton University, Thomas Mayer of Deutsche Bank and Hans-Werner Sinn of the Ifo Institute, though it is not held universally by economists.

A crisis ensues when the balance of payments is in ...

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