Current Account Imbalances and Systemic Risk in a Monetary Union

The aim of this paper is to cast light on possible influences of current account imbalances on the escalation of systemic risk which hit the Eurozone. The hypothesis, which was set up by examining empirical evidence, points to heterogeneity across the macroeconomic conditions prevailing in different clusters of EMU countries. Given the strengthened financial and real interconnections across the EMU countries, the capital flows triggered by widening distances between surplus and deficit trade balances, and also between sound and deteriorating public budgets, represent an important factor magnifying systemic risk.