GREECE’S third bail-out programme came to an end on August 20th. A look at the causes of the country’s near-decade of crisis illustrates how external imbalances can reflect underlying troubles. Gaps in public finances, as well as investments in property, were financed by borrowing from Germany and other northern European countries. Wages and costs were pushed up, making exports less competitive—within the euro zone, there can be no currency devaluation—and further widening Greece’s current-account deficit. When foreign lending seized up, the government needed bailing out and the banks crumbled. Portugal (chiefly because of its public finances), Spain and Ireland (blame private-sector housing bubbles) have similar tales to tell.
As those four countries have stabilised or recovered, they have wholly or partly reversed their current-account deficits (see chart). But if the periphery has adjusted, the same is not true of the euro area’s creditor countries. Surpluses in Germany and the Netherlands have…
