A note on European external imbalances and the euro adoption

In this note, we empirically investigate the effects of the euro adoption in the current account in the Eurozone (EA). As a whole, EA countries have presented a current account close to balance. However, at the individual level, EA countries have presented significant and persistent divergences in their current account balances. We implement a differences-in-differences approach using EU-27 and OECD high-income countries as control groups with robust estimation techniques. Our results show evidence of significant effects of the euro adoption in the current account for the EA-12 countries, especially for the GIIPS (Greece, Italy, Ireland, Portugal, and Spain) countries. Moreover, the current account balance in the euro period is positively related to the current account balance of the pre-euro era.