Columbia International Affairs Online: Working Papers

CIAO DATE: 08/2011

State of the union Can the euro zone survive its debt crisis?

April 2011

Economist Intelligence Unit


In the run-up to the global financial crisis, the euro area looked very much like a microcosm of the world economy. The region as a whole grew in line with its long-term trend, and its trade position with the outside world was broadly in balance. However, the euro area’s aggregate position masked large variations across the member states. In some parts of the region (notably countries on the geographical periphery), demand grew consistently faster than output; in others (like Germany), the reverse was the case. Profligacy in the periphery was funded by thrift in the "core". This arrangement suited both sides for a time at least. While countries in the periphery enjoyed debt-fuelled booms, countries such as Germany, where domestic demand was weak, could rely on exports to keep growing.