During the 1900s, the current account deficits of several European country were

Question

During the 1900s, the current account deficits of several European country were financed by foreign capital inflows enabling them to grow their economies. Since the early 2000s labor productivity has, however, declined- in several Southern European countries in particular - leading to slow growth and high debt/ GDP ratios. Explain why?
During the 1900s, the current account deficits of several European country were financed by foreign capital inflows enabling them to grow their economies. Since the early 2000s labor productivity has, however, declined- in several Southern European countries in particular - leading to slow growth and high debt/ GDP ratios. Explain why?

Explanation / Answer

A huge capital inflows has increased the debt of the European countries. The decline in the labor productivity has led to the decline in GDP.

The above effect combined has led to the Debt/GDP ratio to rise.

Also the economic growth has declined due to consistent debt and falling GDP because of declining labor productivity

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