Forex Flash: Peripheral euro debt is still a concern – Goldman Sachs

FXstreet.com (Barcelona) - In the decade prior to the 2008/09 financial crisis, most countries in the Euro area periphery ran increasingly large current account deficits and accumulated large net external debts. The flip side of peripheral debts was the significant rise in Germany's net creditor position.

According to the Economics Research Team at Goldman Sachs, "In order to achieve external balance, the economies in the periphery need to run and sustain substantial current account surpluses to reduce their external debts." Real exchange rate depreciation is required to shift global demand towards peripheral tradeable goods and services but, in the absence of a flexible exchange rate, this requires a lengthy and painful process of internal devaluation. "Intra-Euro area rebalancing also necessitates German inflation rising well above the Euro area average and above historical norms." the team notes.