Great Graphic: Can the Euro Area Look like Germany?

This Great Graphic shows the current account performance and trajectory according to the IMF of selected euro area countries. It was posted by Alesandro Leipold, who found it through Gavyn Davies.

The graph depicts the significant adjustment in the external balance of a selected number of euro area countries.  Part of this is a function of the contraction in domestic demand, which reduces the imports.  It is also partly a function of improved exports.  The pace of improvement of the current account positions is remarkable.  

One of the consequences of the reduced external imbalances is that Target2 imbalances have also trended lower.  Some observers had seen the Target2 imbalances as a sign that the monetary union experiment was not sustainable.  

Projected a few years into the future, the IMF anticipates that largest euro zone members after Germany to be running external surpluses.  France appears to laggard, but will largely be in balance.  Spain shows impressive improvement and the IMF reckons it will have have a surplus by 2018 that comes close to Germany's.   Moreover, it does not appear zero-sum within the euro area insofar as the modest decline in the projection of the German surplus is more than compensated for the improvement elsewhere.  

What is less clear is that if the euro area surplus rises, where will the offset be globally?  The energy story (and the knock-on impact on industry) in the US is a structural shift suggesting the US external account is also poised to improve.  Does the projected improvement in the euro area external account mean deterioration of China's surplus?  Emerging markets?