Forex Flash: EU periphery remains vulnerable to financial distress – Goldman Sachs

FXstreet.com (Barcelona) - According to the Economics Research Team at Goldman Sachs, “The net international investment position (NIIP) deteriorated sharply in a number of peripheral countries prior to the financial crisis, reaching around -100% of GDP in Spain, Greece, Portugal and Ireland.”

These countries proved especially vulnerable to financial distress: despite the initially low level of public debt in Spain and Ireland, excessive private-sector indebtedness, reflected in the NIIP, ultimately created public-sector financial difficulties.

In previous research, we constructed a gauge of external sustainability, which estimates the real exchange rate depreciation required in Euro area countries to achieve a relatively low NIIP within a reasonable period of time.