Current account balances with the rest of the world (percentage of national GDP in current prices)
for EU Member States and the Euro area (2008, 2016, 2017)
The building pressure on large current account deficits – that is, the increasing inability of certain Member States to carry on financing them by borrowing at affordable interest rates from the private sector – triggered a crisis in some Member States as early as 2008, and in others from 2010 onwards. Figure 1.4 shows the current account balances of EU Member States and of the euro area as a share of their GDP in 2008 and then again in 2016 and 2017. In 2008 there were several Member States with large current account deficits: Bulgaria, Greece, Cyprus, Lithuania, Latvia, Portugal, Romania and Spain all had deficits of about 10% of GDP and above. At the other end of the spectrum the current accounts of several Member States in the north-west region of the EU nd in Scandinavia were either balanced or in surplus. The euro area went from having a virtually balanced external account to developing a sizeable current account surplus of around 3% by 2016-2017.
As the figure shows, the burden of adjustment of these current account imbalances fell predominantly on the shoulders of Member States with deficits, which in most cases reduced them substantially or even turned them into surpluses. On the other hand, Member States with current account surpluses in 2008 (Belgium, Finland, Denmark, Austria, the Netherlands, Germany, Luxembourg and Sweden) underwent much smaller adjustments, if any. Finland, Belgium and Austria moved towards smaller deficits or surpluses. Denmark, the Netherlands and Germany increased their surpluses to reach substantial levels (close to 10% of GDP), while Luxembourg and Sweden reduced their surpluses while keeping them fairly high. The UK’s current account deficit in 2016 and 2017 was not much different than in 2008, although its size had fluctuated in the intervening period. The weaker value of the pound from 2016 seemed to have a rebalancing effect on the trade balance. On the other hand, the deficits in primary income and current ransfers expanded between 2016 and 2017.