Current Account Deficits in the Euro Area: The End of the Feldstein-Horioka Puzzle?

Current Account Deficits in the Euro Area:The End of the Feldstein-Horioka Puzzle? Olivier Blanchard and Francesco Giavazzi In 2000-01 the current account deficit of Portugal reached 10 percent of its GDP, up from 2-3 percent at the start of the 1990s. These deficits are forecast to continue in the 8-9 percent range for the indefinite future. Greece is not far behind. Its current account deficit in 2000-01 was equal to 6-7 percent of GDP, up from 1-2 percent in the early 1990s, and again, the forecasts are for deficits to remain high, in the 5-6 percent range. This is not the first time that some of the small member countries of the European Union have run large current account deficits. In the early 1980s,…