Exporting Assets: The Euro and the Flip Side of Comparative Advantage

This article focuses on how the creation of a single European financial market created a new economic niche – the export of financial assets – that made some EU countries (the UK and the EMU eastern and southern periphery) more dependent upon foreign capital, and more exposed to the financial instability that accompanied it, than others (Germany).  Instead, by enabling countries to improve their financial marketability, EMU effectively allowed small peripheral European economies to specialize in the production and export of financial products rather than in traditional goods and services. These asset exporters became the complementary partners to Europe's savings-rich exporters of goods. Their seemingly abundant investment opportunities, coupled with a heightened willingness to take on public and private debt made them ideal outlets for Continental capital.  The macroeconomic crisis in the Eurozone has exposed the danger of being "too" ideal, leading to overspecialization in financial asset exports. The sustainability of an economy founded on asset exports relies upon (1) the absence of "sudden stop" dynamics and capital flow reversals and (2) the productive deployment of the capital received. The creation of a single European financial market thus created a new economic niche – but a niche in which it would be difficult to thrive over the long term.