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Imbalances in the Euro Area - Part 1
In recent years, the euro area has been running a substantial current account surplus. Much of the improvement is attributable to current account deficit reductions by the GIIPS member states (Greece, Ireland, Italy, Portugal and Spain). It is demonstrated that the current economic slowdown in these countries, besides permanent factors, has also played a role in the improvement. Cyclical normalisation is thus expected to weaken the countries' balances of payments. In order for these countries to reduce their current high levels of external debt to a sustainable level, further current account improvements are needed.