These deficits were financed in the market, largely by investors from a single country: Germany. Germany, which entered EMU with a roughly balanced current account, saw its current account surplus climb to about 8% of GDP by 2007. One can say that in the first years of EMU, the Feldstein-Horioka puzzle within the Union quickly disappeared.
This development had a straightforward explanation in economic theory: less wealthy euro area countries had better growth prospects and offered a higher return on investment. In this environment, greater financial integration allowed a decrease in saving and an increase in investment in less wealthy euro area countries.7 The countries with large current account deficits boomed.