Jacob Frenkel 1

7/29/2019 Jacob Frenkel 1

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J.P.Morgan ChaseS

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The Euro-Zone Crisis and

the Global Economy

Prof. Jacob A. Frenkel

Chairman, JPMorgan Chase InternationalChairman, Board of Trustees, G30

Former Governor, Bank of Israel

The 12th Annual Herzliya ConferenceHerzliya, IsraelJanuary 30-February 2, 2012


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2 J.P.Morgan Chase1/30/2012

Global GDP Growth (%)

-1

0

1

2

3

4

5

6

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

(Percent change)

Forecasts

World Growth

Source: IMF, last update Jan 24 2012, WEO (2011 & 2012 Forecast)

2011: 3.8%2012: 3.3%

2010: 5.2%2009: -0.7%


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Real GDP Growth (%) World Economy

Source: IMF, last update Jan 24 2012, WEO (2011 & 2012 Forecast)

Country 2000 2005 2008 2009 20102011 2012

World 4.8 4.6 2.8 -0.7 5.2 3.8 3.3

Industrial Countries 4.2 2.7 0.1 -3.7 3.2 1.6 1.2

Developing Countries 5.9 7.3 6.0 2.8 7.3 6.2 5.4

GDP Growth(Avg Annual Growth Rate, Constant Prices)


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Real GDP Growth (%), Selected

Countries

-8

-6

-4

-2

0

2

4

6

8

10

12

14

16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

(Annual % Change)

Forecasts US, GDP GrowthEuro Area, GDP Growth Japan, GDP Growth

China, GDP growth India, GDP growth

China,2012:8.2%

Japan,2012:1.7%

Euro Area,2012:-0.5%

US, 2012:1.8%

India,2012:7.0%

Source: IMF, last update Jan 24 2012 , WEO (2011 & 201 2 Forecast)


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Global GDP Shares

UnitedStates

Japan, 6%E U - 27

C h i n a

Ind ia, 6%

Lat inAmer ica

Ot h e rAdvancedEconomies

Ot h e rEmergingEconomies

2011 IMF Forecast

2 0 %

1 8 %8 %

9 %

1 4 %

2 0 %UnitedStates

Japan

E U - 27

China , 4%Ind ia, 3%

Lat inAmer ica Ot h e rAdvancedEconomies

Ot h e rEmergingEconomies

1990

2 5 %

1 0 %

2 9 %

9 %1 2 %

8 %

Source: IMF, WEO Database, last update Sep 2 0 20 11, WEO


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Current Account of Balance of Payments

-900

-700

-500

-300

-100

100

300

500

700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

(U.S. dollars, bill.)

IMF Forecasts

Euro areaUnited States

Middle East, N. Africa, & Russia

Asia

Middle East,N. Africa, &

Russia,2012:$312B

Asia,2012:$736B

Eu ro area,2012:$56B

US, 2012: -$329B

US Spends

Europe Balances

Asia & Oil Exporters Save

Source: IMF, last update Sep 20 2011, WEO (201 1 & 2012 Forecast)


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European Union Exports by Destination

U S, 5 6.6%

China,5 .2%

Asia exChina,38 .2%

2000

U S, 38.3%

China,20 .6%

Asia exChina,41.1%

2011

Source: Eurostat, Last Observation: Sep 2011


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Unemployment Rate (%): Selected Euro

Area Countries

0

6

12

18

24

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(% of Labor Force)

Germany Greece Ireland Spain Italy

Spain:22.9%

Italy:8.6%

Greece:18.2%

Ireland:14.3%

Germany:6.8%

Source: Eurostat, Last Observation: Ireland, Germany (12/11); Italy, Spain (11/11) ; Greece ( 10/11)


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Relative Unit Labor Costs,

Manufacturing Sector

90

100

110

120

130

140

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(index, Q1 2001 = 100)

Germany Greece Italy Spain Euro Area

Italy:133

Greece:112

Spain:123

EuroArea:121

Germany:98

Stage 2

EMU

Euro

adoption

Source: OECD December 2010, Last observation: Q4/2010


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Fiscal Positions: Net Debt Select Euro

Area Economies

0

20

40

60

80

100

120

140

160

180

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

(Percent of GDP)

IMF Forecast Germany GreeceIreland Spain Italy

Greece,2012:175.4%

Spain,2012:58.7%

Ireland, 2012:104.6%

Italy, 2012:100.7%

Germany,2012:57.0%

Source: IMF, WEO Database, last update Sep 20 201 1, WEO (2011 & 2012 Forecast)


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Euro Area Current AccountBalance (% of GDP)

-12

-10

-8

-6

-4

-2

0

2

4

6

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

(Percent of GDP)

IMF Forecast

Germany

Ireland, Spain, Greece, & Portugal

Italy

Euro area

Germany,201 2: 4.9%Germany,201 2: 4.9%

GI PS, 2012:-3.4%

Germany,201 2: 4.9%

Italy, 2012:-3.0%

Eu ro area ,201 2: .4%

Source: IMF, WEO Database, last update Sep 20 201 1, WEO (2011 & 2012 Forecast)


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Current Account Balance and Budget

Deficit (% of GDP 2010)

Source: IMF, last update Sep 20 2011, WEO (201 1 Forecast)

Austria

Belgium

Euro Area

France

Germany

Greece

Ireland

Italy

Netherlands

Portugal

Spain

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

-9-7-5-3-1

CurrentAccountBa

lance(%o

fGDP),2011

General Government Balance (% of GDP), 2011

"Bad" - Zone"


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Gross National Saving Rate and Budget


Austria

Belgium

Euro Area

France

Germany

Greece

Ireland

Italy

Portugal

Slovak Republic

Spain

0

5

10

15

20

25

30

-11-9-7-5-3-1

GrossNationalSaving

Rate(%o

fGDP),2011


"Bad" - Zone"

Source: IMF, last update Sep 20 2011, WEO (2011 Forecast); Eurostat (2011 forecast, EA13)


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Gross Government Debt and Budget


Austria

Belgium

Euro Area

France

Germany

Greece

IrelandItaly

Netherlands

Portugal

Spain

10

30

50

70

90

110

130

150

170

-12-10-8-6-4-20

GrossGeneralGovernmentDebt(%o

fGDP),2011


"Bad" - Zone"

Source: IMF, last update Sep 20 2011, WEO (201 1 Forecast)


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10yr Government Bond Yield Spread

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12

(spread over German Bunds, bps)

Greece:3224bp

12/21/2011p eak: 3578bp

Source: Bloomberg Market Data, Last Observation: Jan 30, 2 012


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10yr Government Bond Yields

1

2

3

4

5

6

7

8

Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12

(Yield, %-pts)

Germany Italy

Italy:6.094%

Germany:1.793%

Source: Bloomberg Market Data, Last Observation: Jan 30, 201 2


17/23


European Sovereign and Corporate CDS

Spreads

Source: Markiit iTraxx data, Last Observation: Jan 27, 2012

0

50

100

150

200

250

300

350

400

Oct-2009 Feb-2010 Jun-2010 Oct-2010 Feb-2011 Jun-2011 Oct-2011 Feb-2012

(CDS, spread in basis points)

iTraxx Western Europe SovX (sovereign), generic 5y

iTraxx Europe HG Corporate, generic 5y

iTraxx Europe Senior Financial, generic 5y

Financial:211bp

Corporate:141bp

Sovereign:323bp


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EUR/USD Spot Exchange Rate

0.800

0.900

1.000

1.100

1.200

1.300

1.400

1.500

1.600

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(USD/EUR)

USD/EUR:1.314

Changeoverto euro

IMF approvesfir st loan to

Greece

Lehmancollapse

Source: Bloomberg Market Data, last observation: January 27, 201 2


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Coordinated Global Rate Cuts

-1

0

1

2

3

4

5

6

2005 2006 2007 2008 2009 2010 2011 2012

(%)

United Kingdom Japan Eurozone Canada United States

EUR,1.00%

Canada,1.0%

Japan0.1%

US0.25%

UK 0.5%

Source: Bloomberg Market Data, Last observation: 30 Jan, 20 12


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Total Assets of Key Central Banks(indexed levels)

50

100

150

200

250

300

350

400

Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11

(indexed, end of June 2007 = 100)

BoE ECB Federal Reserve

BoE: 378

Fe d: 336

ECB : 224

Source: NSI's, Last Observation: Fed, BoE (Jan 25, 2012 ); ECB (Jan 20, 2012 )

Current assets

Billions of $

Total 6,893

Of Which:

Fed 2,922

BoE 472

ECB 3,499

U S U l t b L l f


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U.S. Unemployment, by Level of

Education

0

2

4

6

8

10

12

14

16

2000 2005 2010

(Unemployment Rate in %)

No high school diploma

High school diplomaTotal

Some college

College degree or higher

No HS

diploma:13.8%

HS

diploma:

8.7%

Total:

8.5%

Some

college:

7.7%

College

or

higher:

4.1%

Source: Bureau of Labor Statistics, Last Observation: December 201 1


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U.S. Unemployment, by Duration

Source: Bureau of Labor Statistics, Last Observation: December 2011

0

10

20

30

40

50

2000 2002 2004 2006 2008 2010 2012

(Share of total unemployed)

Less than 5wks

5 to 14wks

15 to 26wks

27 weeks or more


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World Trade Volume

-12

-7

-2

3

8

13

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

(Percent change)

IMF Forecasts World trade volume

Source: IMF, av. Annual growth rates, last update Jan 24 2012 , WEO (2011 & 2012 Forecast).

2012: 3.8%

2009: -10.7%2010: 12.7%2011: 6.9%

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