Lessons from the euro crisis - European Stability Mechanism · The European economy after the...
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Lessons from the euro crisis Rolf Strauch Member of the Management Board, Chief Economist 6 th BBVA Seminar for Public Sector Investors and Issuers Valencia, 23 March 2017
Transcript of Lessons from the euro crisis - European Stability Mechanism · The European economy after the...
Lessons from the euro crisis
Rolf Strauch
Member of the Management Board, Chief Economist
6th BBVA Seminar for Public Sector Investors and Issuers
Valencia, 23 March 2017
The European economy after the crisis
1. A comprehensive crisis response brought the euro area back to
equitable growth
more balanced macro-economic position
safer banks
2. Overcoming legacies takes persistent efforts – more work needed
Unemployment
Investment and productivity
Financial legacy assets
3. Making the euro area more robust – better risk-sharing
4. Why populists are wrong about the euro area
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1. Europe’s comprehensive response to the crisis
Budget consolidation and structural reform in euro area countries
Accommodative monetary policy, including unconventional measures
Closer economic policy coordination in the currency union
Strengthening the banking system
Firewalls against the crisis: EFSF and ESM
2
1. Growth in Europe: back to normal
Real GDP growth year/year (%)
3
Note: Figure for Ireland in 2015: 26.3%
Source: EC European Economic Forecast – Winter 2017
-6
-4
-2
0
2
4
6
8
10
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Euro area Germany Ireland Portugal Spain
Source: EC European Economic Forecast – Winter 2017
Per capita growth in US and EU is very similar
Average GDP growth
per capita, 1999-2008
euro area 1.6%
US 1.6%
1. Growth in Europe is moving in line with the U.S. again
4
-6
-5
-4
-3
-2
-1
0
1
2
3
4
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Euro area US
Note: Gross earnings of full-time dependent employeesSource: OECD
Ratio of highest 10% earners vs lowest 10% earners in US and European countries
2
2.5
3
3.5
4
4.5
5
5.5
2004 2005 2006 2007 2008 2009 2010 2011 2012
US DE FR IT
5
…but income equality in Europe is much greater than in the U.S.
1. Fiscal deficits are shrinking
Source: European Commission Economic Forecast – Winter 2017
Selected government balances (% of GDP)Government balance in programme countries (% of GDP)
Note: Government balance for Ireland in 2010: -32.4%
7
-14
-12
-10
-8
-6
-4
-2
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Euro area US Japan UK
-25
-20
-15
-10
-5
0
5
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Germany Ireland Greece Portugal Spain Cyprus
1. Competitiveness is improving
■ Thanks to the convergence in competitiveness, external imbalances in the periphery
have disappeared
Current account balance (% of GDP)
Source: EC European Economic Forecast – Winter 2017
Nominal unit labour costs (2000=100)
7
90
100
110
120
130
140
150
160
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
-20
-15
-10
-5
0
5
10
15
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
1. Employment in Europe better than recognized
8
Cumulative percentage point change since 2000
Age group: 16-64Source: EC European Economic Forecast – Winter 2017
Employment rate (p.p. change)Participation rate (p.p. change)
■ Unlike in previous crises, participation and employment rate did not fall in Europe
-4
-3
-2
-1
0
1
2
3
4
5
6
7
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Euro area US
-8
-6
-4
-2
0
2
4
6
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Euro area US
2. Youth unemployment still unacceptably high
■ Unemployment rate still above pre-crisis levels
■ High youth unemployment particularly concerning
Unemployment rate under 25 (%)
Source: Eurostat
Unemployment rate (%)
9
0
2
4
6
8
10
12
14
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
US EA
0
10
20
30
40
50
60
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
DE IE GR PT ES CY
2. The investment gap after the crisis
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■ Investment critical for both recovery and long-term growth
■ Both public and private investment stay below pre-crisis levels
Euro area: public and private investment
(% GDP, cum. p.p. change since 2000)Spending on R&D (% GDP)
Source: EC European Economic Forecast – Winter 2017
0.0
0.5
1.0
1.5
2.0
2.5
3.0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
Ta
rget
202
0
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
2000 2002 2004 2006 2008 2010 2012 2014 2016
Public Private
2. Europe: Non-Performing Loans are stalling at a high level…
Source: Standard & Poor’s (SNL Financial), banks’ annual reports, ESM calculations 11
0
100
200
300
400
500
600
700
800
900
1,000
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0%
10%
20%
30%
40%
50%
60%
70%
EURbn
Gross NPLs (LHS) Reserves on NPLs (LHS) NPL Coverage ratio (RHS)
3. How to make the euro more robust
No full Fiscal Union needed
No full Political Union needed
Complete Banking Union
• European Deposit Insurance
• Backstop for the SRF
Capital Markets Union
• To facilitate private sector efforts for financial integration
• More capital flows, more risk sharing
• Address taxation, insolvency and company law issues
Fiscal Union
• Limited fiscal capacity for the euro area
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Risk sharing is underdeveloped in the EU and euro area
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Percentage of shock smoothed by different channels
Source: Bruegel and IMF
EU EMU Canada US Germany
Credit market
Capital market
Fiscal
Economic risk sharing in the euro area is lagging behind the US
4. Why populists are wrong about the euro area
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Myth #1: Euro area is underperforming
Euro area is doing better than generally recognised – per-capita growth close to the US, more equal income distribution, overcoming imbalances and making banks safer
Myth #2: Euro area too rigid to respond to policy challenges
Remarkable achievements over the crisis: SGP reform, banking union, country programmes all agreed jointly around one table – historically unprecedented success
Myth #3: Euro area is flawed and source of the crisis
Diversity in income is not an issue. Imbalances due to policy mistakes caused the crisis, not the euro. But imbalances were successfully addressed withinmonetary union.
Myth #4: Euro area countries can do better when exiting
Leaving the euro area would only make people poorer, not richer if the fundamental problems of a country are not resolved
5. How do Europeans see the EU?
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To contact us:
Rolf Strauch
Member of the Management Board, Chief Economist
Tel: +352 260 962 801
Email: [email protected]
Wolfgang Proissl
Head of Communication & Chief Spokesperson
Tel: +352 260 962 230
Email: [email protected]
Douwe Miedema
Financial Press Spokesperson
Phone: +352 260 962 236
