the crisis of the eurozone and broader repercussions - jean monnet lecture series -

Uwe Wixforth LL.M. - Embassy of the Federal Republic of Germany -

The Crisis of the Eurozone and Broader Repercussions - Jean Monnet Lecture Series - Center for European and International

Affairs – University of Nicosia, 20th of March 2012


I. Form and structure of the current crisis Do we speak about: EURO crisis or debt crisis?

Features of the crisis: Overall debt of some countries is far too high Annual budget deficit is too high We are talking about how much new debt is adding to the

total debt. NO memberstate is reducing debts currently !

Consequence because of interest rates: debt increases further more and more (see

rating agencies judgement; is this fact fair for young generation ??)

23 of 27 Member States in the Excessive Deficit Procedure (EDP)


Debt as a percentage of GDP, 2009-2010

scource: European Commission - Eurostat

National debt of Greece on the 31/12/2010: 340,29 Mrd (149,7%)31/12/2011: 367,98 Mrd (170,9%)


Annual budget deficit 2010


II. Possible solutions of the debt crisis Who pays for all the debt in the end ?

Private Sector Involvement (PSI) Austerity Measures of Member States Solidarity = International help

(EU/ECB/IMF)

Germany`s position: All three sectors must be in balance Rule for the future: Fiscal Compact / ESM establish policy for

fiscal stability


First pillar: Private Sector Involvement (PSI)

This pillar refers formally only to Greece, not for the other Member States. But for other MS: Collective Action Clauses (CAC)

Results of Eurogroup ministerial meeting 21./22. February 2012 on Greece : haircut 53,5 % Reduction of the debt: 107 Mrd € Interest rates of the new Greek government bonds:

until 2015: 2% until March 2020: 3% until 2042: 4,3%

Target: National debt in 2020: 120,5 %

1) Solution of urgent problem Greece:


2) Provision for the future: Fiscal compact

Signed by 25 MS ( not UK, CZ ) on 02.03. 2012

Content: Government budgets shall be in balance or surplus. Structural deficit must not exceed 0,5 % of nominal GDP as a rule. Rules shall be fixed in MS at constitutional or equivalent level Automatic correction mechanism on tailor made proposal of COM Jurisdiction of ECJ, possible fine of 0,1 % of GDP ( to ESM for € -

zone countries ) MS agree to take measures for good functioning of € - area,

fostering competitiveness, promoting employment, reinforcing financial stability

Scource:, Text of Fiscal Compact, WIKIPEDIA


3) Euro - bonds ?

I. Economic meaning: Joint bonds issued by all Euro-Zone Member

States, sharing the same parameters, i.e. the same interest rate. Joint liability of all MS.

II. Germany`s approach „Moral hazard“ may be involved, because no

difference between the competitiveness of the specific economies is taken into account


Effect on Competitivenessa) Member States with a comparatively low

competitiveness get relatively cheap money; i.e. cheaper as they would get it under market conditions. Capital costs are lower as in market conditions

b) Member States with a comparatively high global competitiveness (AAA-countries) have to pay relatively more for Government bonds as normal. Capital costs are higher as in market conditions


Possible effects for MS :a) Member States with comparatively low competitiveness:Cheap money might be at least partially used for consumption

purposes and not for investment to the required extent higher debts, not in improvening competitiveness

b) Member States with comparatively high competitiveness:higher refinancing costs, economic performance is slowing

down in the long run

Risk: Europes main Engines are slowing down

resulting in

resulting in

Global Competitiveness is crucial !

Nowadays almost all major markets for goods and services are global markets („Globalisation“)

Therefore Euro-Zone economies must find ways to compete on global markets if they want to sell goods and services to the world !

Any financial aid can only assist with the right steps to be taken for MS taking into account their respective economy. Permanent transfers without improving competitiveness are not helpful in the long run.

Aid is just temporary, to „buy time“ for implementing reforms


Feel free to discuss with us now !

Σας ευχαριστώ για την προσοχή σαςThank you for your attention

[email protected]@diplo.de

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the crisis of the eurozone and broader repercussions - jean monnet lecture series -

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