the euro area crisis: origins, prospects and implications for the world economy and global...
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The Euro Area Crisis: Origins, Prospects and Implications for the World Economy and Global Governance. Domenico Lombardi UNLV, April 3, 2013. Structure. Systemic Relevance of Eurozone Economy & Experience “Great Expectations” Fiscal, Competitiveness and Structural Policies - PowerPoint PPT PresentationTRANSCRIPT
The Euro Area Crisis: Origins, Prospects and
Implications for the World Economy and Global Governance
Domenico LombardiUNLV, April 3, 2013
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Structure• Systemic Relevance of Eurozone
Economy & Experience
• “Great Expectations”
• Fiscal, Competitiveness and Structural Policies
• Open Discussion on the Way Forward
3
Source: World BankNote: The eurozone refers to the 17 countries that currently have the euro as their currency. These countries are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain
Eurozone PopulationPercent of World
Domenico Lombardi
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20114.7
4.75
4.8
4.85
4.9
4.95
5
5.05
5.1
5.15
5.2
Eurozone Population
4
Source: IMF WEONote: Data after 2011 based on staff estimates
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 201714
15
16
17
18
19
20
21
22
23
24
Eurozone GDP Market Prices (as a share of World)
GDP Market Prices Percent of World
Domenico Lombardi
5
Source: IMF WEONote: Data after 2010 (2011 for some countries) based on staff estimates
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 201710
11
12
13
14
15
16
17
18
19
Euroarea GDP PPP (Share of World)
GDP PPP Percent of World
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Source: World Bank WDINote: Trade is defined as the sum of exports and imports of goods and services
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201124
25
26
27
28
29
30
31
32
33
Eurozone Trade (Share of World)
Eurozone TradePercent of World
Domenico Lombardi
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Source: BISNote: The euro share of banks’ international position is defined as euro-denominated, allocated assets vis-à-vis all sectors*2012 point reflects up through Q3
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*30
32
34
36
38
40
42
Euro Share allocated
Euro Share of Banks’ International Positions, %
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Relevance of European Regional Experience
• European integration has set the benchmark in regional policies by providing practical case studies in terms of legal frameworks, intermediate milestones, successes and (now) failures
9
Forecasted and realized GDP growth Euro area, %
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-5
-4
-3
-2
-1
0
1
2
3
4
5
Forecasted Growth Rate Realized Growth Rate
Source: IMF World Economic Outlook, from September 1998 to October 2012
Domenico Lombardi
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Forecasted and realized GDP growth Italy, %
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-6
-5
-4
-3
-2
-1
0
1
2
3
4
Forecasted Growth Rate Realized Growth Rate
Source: IMF World Economic Outlook, from September 1998 to October 2012
Domenico Lombardi
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The ConvergenceGovernment Bond Yields, 10 years’ maturity
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20072
4
6
8
10
12
14
16
18
Germany Greece Spain Italy Portugal
Source: Eurostat Domenico Lombardi
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Government Gross Debt% of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
France 57.4 56.9 59.0 63.2 65.0 66.7 64.1 64.2 68.2 79.2 82.3 86.0 90.0
Germany 60.2 59.1 60.7 64.4 66.2 68.5 67.9 65.4 66.9 74.7 82.4 80.6 83.0
Greece 103.4 103.7 101.7 97.4 98.9 101.2 107.3 107.4 112.6 129.0 144.6 165.4 170.7
Italy 108.5 108.2 105.1 104 103.4 105.4 106.1 103.1 105.7 116.0 118.6 120.1 126.3
Spain 59.4 55.6 52.6 48.8 46.3 43.2 39.7 36.3 40.2 53.9 61.3 69.1 90.7
Source: IMF WEO, October 2012 Domenico Lombardi
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Government Fiscal Deficit% of GDP
Source: IMF WEO, October 2012
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
France -1.5 -1.7 -3.3 -4.1 -3.6 -3.0 -2.4 -2.8 -3.3 -7.6 -7.1 -5.2 -4.7
Germany 1.3 -2.8 -3.7 -4.1 -3.8 -3.4 -1.6 0.2 -0.1 -3.2 -4.1 -0.8 -0.4
Greece -3.7 -4.4 -4.8 -5.7 -7.4 -5.6 -6.0 -6.8 -9.9 -15.6 -10.5 -9.1 -7.5
Italy -0.9 -3.2 -3.2 -3.6 -3.6 -4.5 -3.4 -1.6 -2.7 -5.4 -4.5 -3.8 -2.7
Spain -1.0 -0.7 -0.5 -0.2 -0.3 1.0 2.0 1.9 -4.2 -11.2 -9.4 -8.9 -7.0
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Government Structural Balance% of potential GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
France -2.7 -2.6 -3.4 -3.4 -3.2 -2.9 -2.3 -3.0 -3.0 -4.7 -4.6 -3.5 -2.8
Germany -1.6 -2.8 -3.1 -3.2 -3.3 -2.6 -2.3 -1.1 -0.9 -1.2 -2.3 -0.9 -0.5
Greece -2.3 -3.3 -3.7 -6.2 -8.5 -6.7 -8.7 -10.6 -13.9 -18.6 -12.1 -8.3 -4.5
Italy -3.1 -4.9 -5.0 -5.3 -5.0 -5.2 -4.1 -3.3 -3.5 -3.6 -3.3 -3.4 -0.6
Spain -1.1 -1.8 -1.1 -1.0 -1.0 -1.6 -1.3 -1.1 -5.0 -9.0 -7.3 -7.5 -5.4
Source: IMF WEO, October 2012 Domenico Lombardi
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Exports and Imports(Italy, % of GDP)
2000 2007 2008 2009 2010 20110
5
10
15
20
25
30
35
ExportsImports
Source: IMF International Financial Statistics Domenico Lombardi
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Exports and Imports (Spain, % of GDP)
2000 2007 2008 2009 2010 20110
5
10
15
20
25
30
35
40
ExportsImports
Source: IMF International Financial Statistics Domenico Lombardi
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Exports and Imports(France, % of GDP)
2000 2007 2008 2009 2010 20110
5
10
15
20
25
30
35
ExportsImports
Source: IMF International Financial Statistics Domenico Lombardi
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Exports and Imports (Germany, % of GDP)
2000 2007 2008 2009 2010 20110
10
20
30
40
50
60
ExportsImports
Source: IMF International Financial Statistics Domenico Lombardi
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Degree of OpennessTotal trade as a percent of GDP
Italy Spain Germany France UK0
10
20
30
40
50
60
70
80
90
100
2000 2011Source: IMF International Financial StatisticsNote: Total trade equals exports plus imports Domenico Lombardi
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Germany’s Trade with Euro areaRatio of “Trade with Euro area” to “Trade with world”
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201141
42
43
44
45
46
47
Export Ratio Import Ratio
Source: IMF Direction of Trade Statistics, and author’s own calculations Domenico Lombardi
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German Current Account Balance and Real Effective Exchange Rate
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011-2
-1
0
1
2
3
4
5
6
7
8
90
92
94
96
98
100
102
104
106
108
Current Account Balance Real Effective Exchange Rate
Cur
rent
Acc
ount
Bal
ance
(% o
f GD
P)
Rea
l Effe
ctiv
e Ex
chan
ge R
ate,
200
5=10
0
Source: IMF WEO, Oct 2012 Domenico Lombardi
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Current Account Balances: Northern v. Southern Europe (Billions USD)
Source: IMF World Economic Outlook, October 2012 (and latest estimates for China and U.S.)Notes: Northern Eurozone includes Austria, Finland, Germany, and the Netherlands. Northern Europe includes Northern Eurozone plus Denmark, Norway, Sweden, and Switzerland. Southern Europe includes Greece, Italy, Portugal, and Spain. The U.S. current account balances in billions USD for 2005, 2008, 2011, and 2012 proj .respectively: -745.8, -677.1, -465.9, -478.9. The Chinese CA balance in billions USD for the same years respectively: 134.1, 412.4, 201.7, 220.0.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-400
-300
-200
-100
0
100
200
300
400
500
600
Northern Europe Northern Eurozone Southern Europe
Bill
ions
USD
Domenico Lombardi
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Current Account Balances(in % of GDP)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-8
-6
-4
-2
0
2
4
6
8
10
12
Euro area China Germany United States
Source: IMF World Economic Outlook, October 2012 Domenico Lombardi
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Productivity and Labor Compensation in Selected Countries: France
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201190
100
110
120
130
140
150
Labor Compensation per Unit Labor Input Labor Productivity per Unit Labor Input
Source: OECD Domenico Lombardi
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Productivity and Labor Compensation in Selected Countries: Italy
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201190
100
110
120
130
140
150
Labor Compensation per Unit Labor Input Labor Productivity per Unit Labor Input
Source: OECD Domenico Lombardi
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Productivity and Labor Compensation in Selected Countries: Spain
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201190
100
110
120
130
140
150
Labor Compensation per Unit Labor Input Labor Productivity per Unit Labor Input
Source: OECD Domenico Lombardi
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Productivity and Labor Compensation in Selected Countries: Germany
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201190
100
110
120
130
140
150
Labor Compensation per Unit Labor Input Labor Productivity per Unit Labor Input
Source: OECD Domenico Lombardi
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Unit Labor CostsGermany vs Southern Europe, 2000=100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201090
95
100
105
110
115
120
125
130
135
140
Germany Greece Spain Italy Portugal
Source: OECD Domenico Lombardi
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To Close the 2000-10 Gap in 2016
Case A
Productivity, Labor Compensation and Unit Labor Costs 2011-2016 Proposed Average Annual Growth Rates
ProductivityLabor
CompensationUnit Labor
CostsGermany 0.70% 1.50% 0.79%Greece 0.70% -2.90% -3.58%Spain 0.70% -1.97% -2.65%Italy 0.70% -2.71% -3.39%Portugal 0.70% -1.64% -2.33%
Case B
Productivity, Labor Compensation and Unit Labor Costs 2011-2016 Proposed Average Annual Growth Rates
ProductivityLabor
CompensationUnit Labor
CostsGermany 0.70% 1.50% 0.79%Greece 2.00% -1.65% -3.58%Spain 2.00% -0.71% -2.65%Italy 2.00% -1.45% -3.39%Portugal 2.00% -0.37% -2.33%
Domenico Lombardi
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To Close the 2000-10 Gap in 2016
Case C
Productivity, Labor Compensation and Unit Labor Costs 2011-2016 Proposed Average Annual Growth Rates
ProductivityLabor
CompensationUnit Labor
CostsGermany 0.70% 4.00% 3.27%Greece 0.70% -0.51% -1.20%Spain 0.70% 0.44% -0.26%Italy 0.70% -0.31% -1.01%Portugal 0.70% 0.78% 0.08%
Case D
Productivity, Labor Compensation and Unit Labor Costs 2011-2016 Proposed Average Annual Growth Rates
ProductivityLabor
CompensationUnit Labor
CostsGermany 0.70% 4.00% 3.27%Greece 2.00% 0.77% -1.20%Spain 2.00% 1.74% -0.26%Italy 2.00% 0.97% -1.01%Portugal 2.00% 2.08% 0.08%
Domenico Lombardi
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• Productivity in Germany is assumed to grow at 0.7% per annum, close to the rate achieved in 2000-10 average
• Case A:
• Wages in Germany grow at 1.5%
• Productivity in South grows at 0.7%
• Case B:
• Wages in Germany grow at 1.5%
• Productivity in South grows at 2.0%
Domenico Lombardi
What Must be the Wage Behavior in the South to Close ULC Gap in 5 Years?
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What Must be the Wage Behavior in the South to Close ULC Gap in 5 Years?• Case C:
• Wages in Germany grow at 4.0%
• Productivity in South grows at 0.7%
• Case D:
• Wages in Germany grow at 4.0%
• Productivity in South grows at 2.0%
Domenico Lombardi
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The Ease of Doing Business RankingsOverall and by Sub-Index, 2013
Sub categories
Ease of Doing
Business Rank
Starting a Business
Dealing with ConstructionPermits
Getting Electricity
Registering Property
Getting Credit
Protecting Investors
Paying Taxes
Trading Across Borders
Enforcing Contracts
Resolving Insolvency
U.K. 7 19 20 62 73 1 10 16 14 21 8
Germany 20 106 14 2 81 23 100 72 13 5 19
France 34 27 52 42 146 53 82 53 27 8 43
Spain 44 136 38 70 57 53 100 34 39 64 20
Italy 73 84 103 107 39 104 49 131 55 160 31
Source: World Bank Doing Business Report, 2013 Domenico Lombardi
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Overall Nearness to Frontier
France Germany Greece Italy Spain United Kingdom
0102030405060708090
100
6277
55 64 6983
8.60000000000001
-0.5
6.91.3999999999
99993
2.59999999999999
2005Improvement between 2005 and 2012Deterioration between 2005 and 2012
Source: World Bank Doing Business Report, 2013 Domenico Lombardi
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