Moody's Chief Economist Sees Progress in European Union's Periphery Economies

September 25, 2013




By the end of 2012--in just three years--the European Union's periphery nations--Cyprus, Greece, Ireland, Italy, Portugal, and Spain--as an aggregate had restored their current account balances to mid-1990 levels (on average -1%), observed Lucio Vinhas de Souza, Sovereign Chief Economist of Moody's Investor Services. Dr. Vinhas de Souza spoke at Isenberg on September 20 in Moody's Finance Research Seminar series, sponsored by Moody's Corporation, an international leader in the fields of credit ratings and research involving debt instruments and securities.


The main driver of the current accounts turnaround has been the periphery's positive trade balance, emphasized Dr. Vinhas de Souza, a former senior economist with the World Bank and a senior European Commission official. That was attributable initially to a contraction of imports and later by growth of exports due to increasing competitiveness and geographical diversification.


Increased labor productivity has been critical to increased competitiveness in Cyprus, Italy, Portugal, and Spain, Dr. Vinhas de Souza continued. In the long run, gains in competitiveness and a return to economic growth must follow from meaningful structural reform. The large international assistance programs extended to those countries are designed to support this process and their implementation has progressed quite considerably (with even full implementation in some cases). But these structural reform support programs, he observed, have addressed very different questions, from wide-ranging initiatives in Greece and Portugal to more limited banking-sector efforts in Cyprus and Spain.


Just as critical, the EU has accelerated its own implementation of more federal-like structures over the past three years. The role of its Central Bank is now closer to the U.S. Federal Reserve's and the EU's fiscal authority has more teeth.  At the same time, actual implementation remains "on" the member states. The EU's institutional development, Dr. Vinhas de Souza advised, is necessarily staggered, imperfect, and incomplete. But it is a vitally important work in progress that is yielding-like the current accounts turnaround-progress itself.



In addition to its sponsorship of the Finance Research Seminar series in its name, Moody's has favored Isenberg with valued access to its suite of data bases, which cover the entire waterfront of credit-focused data involving economies, companies, countries, municipalities, and other entities.  Read more about the Isenberg-Moody's partnership here.