Nov 17, 2011

The euro-zone crisis seems to be reaching its climax

The euro-zone crisis seems to be reaching its climax, with Greece on the verge of default and an inglorious exit from the monetary union, and now Italy on the verge of losing market access. But the euro zone’s problems are much deeper. They are structural and they severely affect at least four other economies: Ireland, Portugal, Cyprus and Spain.

For the past decade, the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) were the euro zone’s consumers of first and last resort, spending more than their income and running ever-larger current-account deficits. Meanwhile, the euro-zone core (Germany, the Netherlands, Austria and France) comprised the producers of first and last resort, spending below their incomes and running ever-larger current-account surpluses.

These external imbalances were also driven by the euro’s strength since 2002, and by the divergence in real exchange rates and competitiveness within the euro zone. - in

Etfs, iShares MSCI Spain Index ETF (EWP), iShares MSCI Germany Index Fund ETF (EWG), iShares MSCI Italy Index ETF (EWI), iShares MSCI Netherlands Investable ETF (EWN)

Nouriel Roubini is an American economist. He teaches at New York University's Stern School of Business and is the chairman of Roubini Global Economics.