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This paper describes the dynamics of the external positions of euro area countries since the formation of EMU. While external imbalances have been the main focus in recent times, current account balances can only be properly interpreted in the context of understanding the overall international balance sheet and the dynamics of the net foreign asset. The creation of the euro represented a fundamental financial shock, whose effects then coincided with a reshaping of the international financial system through important financial innovations and the credit boom and securitization boom that followed. The paper builds a profile of the international balance sheets of euro area countries in order to understand the sources and implications of shifts in net positions over the last decade. It is also considers the gross scale of cross-border holdings. To understand the international risk distribution, the overall position is broken down between equity and debt components. The international currency exposures embedded in the international balance sheets are described. In relation to net flows and net positions, the paper tracks the distribution and persistence of current account balances and net foreign asset positions across the member countries. Furthermore, we document that other factors (such as valuation effects) have been important in the dynamics of the net foreign asset positions, in addition to the contribution made by the cumulative current account position. This working paper relates to the 2010 OECD Economic Survey of the Euro Area (www.oecd.org/eco/surveys/euroarea).
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This paper assesses the extent to which debt overhang poses a constraint to economic activity in Emerging Europe, as the region emerges from the recent financial and economic crisis. At the macroeconomic level, it finds that the external imbalance problem for Emerging Europe has been in most cases more one of flows (high current account deficits in the pre-crisis years) rather than large stocks of external debt. A high reliance on equity funding means that net external debt is far lower than net external liabilities. Domestic balance sheets have expanded quite rapidly but sector liabilities remain relatively low compared with advanced economies. With the important exception of Hungary, public debt levels also remain relatively low in Emerging Europe. At the microeconomic level, the potential for debt overhang in the corporate sector is limited to a few countries: Latvia, Lithuania, Estonia, and Slovenia. Due to the low incidence of household debt, hardly any country, except Estonia, seems to face a threat of debt overhang in the household sector. The strong increase in non-performing loans compared with pre-crisis bank profitability suggests that debt overhang in the banking sector is a threat in Ukraine, Latvia, Lithuania, Hungary, Georgia, and Albania. Financial integration of Emerging Europe seems to have contributed to the transmission of the crisis to the region. At the same time, this integration is helping the region in managing the crisis by concerted actions of the major players.
Access to Finance --- Bankruptcy and Resolution of Financial Distress --- Banks & Banking Reform --- Consumption --- Debt Markets --- Debt overhang --- Emerging Markets --- Finance and Financial Sector Development --- Household behavior --- Investment