Surplus Country Vulnerability to Rebalancing

Abstract

Abstract Surplus countries usually do not attract attention in balance-of-payment crises. However, even though the immediate crisis repercussions mostly center on countries with large current account deficits, surplus countries form an integral part of current account imbalances. They contribute to the underlying problem and could be part of the solution. While in the Eurozone crisis this became especially apparent in negotiations about bailout packages and mutual adjustment measures, such conflicts between surplus countries and deficit states occupy hardly a unique situation. This chapter, therefore, examines the position of surplus countries during the Eurozone crisis in a broader, comparative perspective. Building on the concepts laid out in Chapter 2, it develops a quantitative measure of surplus country vulnerability profiles, which express the relative costs of external and internal adjustment. Specifically, vulnerability profiles of surplus countries in the Eurozone crisis are developed against the backdrop of 272 historical surplus episodes in 61 countries and are specifically compared with those outside the monetary union and with those in the EMS crisis. Similarly to their deficit counterparts, the surplus countries in the Eurozone were in the “misery corner,” where they faced high costs to both external and internal adjustment. The vulnerability profiles indicate why they acquiesced to bailout packages for deficit countries, but only after a difficult and lengthy political struggle.