Euro zone: How financial integration has led to financial disintegration

The creation of the euro was followed by significant financial integration between the euro-zone countries: the countries with savings surpluses lent them to the countries with savings deficits, and gross external debt and assets increased considerably. But this led to a sharp rise in the peripheral euro-zone countries’ external debt ratios: the 2008-2009 growth slowdown then stripped them of their solvency and led to the 2010-2013 balance-of-payments crisis. The se countries could then no longer borrow externally and had to wipe out their external deficits by reducing their domestic demand. So since 2010, there has no longer been any capital mobility between the euro-zone countries: the countries with savings surpluses have lent them to the rest of the world outside the euro zone and not to the other euro-zone countries. The initial financial integration therefore led to the balance-of-payments crisis and to the subsequent financial disintegration of the euro zone.