the eurozone context is there a proper identification of the crisis’ causes? lucian croitoru
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The Eurozone context Is there a proper identification of the crisis’ causes? Lucian Croitoru. Source: Eurostat, US Department of Commerce, WEO Database, Bloomberg. What is the nature of the crisis?. The fiscal malfeasance? The balance of payments crisis? - PowerPoint PPT PresentationTRANSCRIPT
The Eurozone context
Is there a proper identification of the crisis’ causes?
Lucian Croitoru
IIP(% of GDP)
Public debt (% of GDP)
2010 2010
Euro area -13.3 85.6 -
Bulgaria -97.7 16.3 4.3
Czech Republic -49.0 37.6 3.8
Ireland -90.9 94.9 9.0
Greece -92.5 144.9 35.7
Spain -89.5 61.0 4.5
Italy -23.9 118.4 6.2
Hungary -112.5 81.3 9.0
Poland -64.0 54.9 4.8
Portugal -107.4 93.3 16.0
Romania -65.3 31.0 6.6
US -17.0 95.2 1.5
LT Yield(latest, bonds maturing
in 2018)
Source: Eurostat, US Department of Commerce, WEO Database, Bloomberg
Exposure of US-owned banks on EA and PIIGS
23
24
25
26
27
28
29
30
31
32
33
34
Ma
r.0
5
Jun
.05
Se
p.0
5
De
c.0
5
Ma
r.0
6
Jun
.06
Se
p.0
6
De
c.0
6
Ma
r.0
7
Jun
.07
Se
p.0
7
De
c.0
7
Ma
r.0
8
Jun
.08
Se
p.0
8
De
c.0
8
Ma
r.0
9
Jun
.09
Se
p.0
9
De
c.0
9
Ma
r.1
0
Jun
.10
Se
p.1
0
De
c.1
0
Ma
r.1
1
Jun
.11
Se
p.1
1
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
share of claims on the euro area in total claims of US owned banks
share of claims on PIIGS in total claims of US banks (rhs)
share in total claims (%) share in total claims (%)
Source: BIS Database
What is the nature of the crisis?
• The fiscal malfeasance?
• The balance of payments crisis?
• The decisions should be different, depending the nature of the crisis
• The European leaders think of a fiscal nature of the crisis
• Based on data, one may think of a balance of payments crisis
• If the competitiveness is the real problem, than the solutions are of two folds:• An external adjustment. Specifically, shifts in competitiveness• Looser macropolicies to alow higher inflation and higher credit
growth in surplus countries
Budget deficits and public debts
Red for 2009-2010
Blue for 1997-2007
Greed for 1990-1998 (average, % of GDP)
Blue for 1997-2007 (average, % of GDP)
Current account deficits
Red for 2009-2010
Blue for 1997-2007
Green for 1990-1998 (average, % of GDP)
Blue for 1999-2007 (average, % of GDP)
Blue for 1997-2007
Red for 2009-1010
Unit labor costs
Blue for LP
Red for NCE
Blue for LP
Red for NCE
Blue for LP
Red for NCE
Conclusions from comparing fiscal deficits, public debt and current account deficits
• Cash deficits select well Greece. But fail to select any other country if the 1999-2007 average fiscal deficts is considered
• Public debt is also a imprecise measure: it rightly picks up Greece, Italy, Belgium and Portugal. But fails to pick up Estonia, Ireland and Spain, which performed better than Germany before the crisis
• The current account deficits picks up Greece, Portugal, Italy, Ireland, Spain.
Key decisions include
• No compelling for private bondholders to take losses on euro-zone bail-outs. But voluntary restructuring remains
• Some degree of automaticity of sanctions on countries that fail to stay within the limits on budget deficits
• Requirements for balanced budget into domestic legislations
• Introduction of the ESM in June 2012
• Monthly meetings of European leaders to oversee policy co-ordination