Spanish & Irish Current Account Deficits Cut In Half

Both Ireland and Spain saw their current account deficit drop by nearly half during 2009. In Ireland, the deficit fell from €9.4 billion to €4.8 billion, or from 6.3% of GNP to 3.5%. In Spain, the deficit fell from €104.4 billion to €53.2 billion, or from 9.6% of GDP to 5.1%.

The difference between them is that while Spain has had a smaller economic contraction than most other European countries, Ireland has had the biggest drop in output in the euro area (and in all of Western Europe). Why one country with a previous housing bubble has managed the adjustment so much better than the other is not clear, though we can say with certainty that it is not about currency policy, since both Ireland and Spain have the euro as currency.