Transcript Slide 1

The Eurozone Crisis:
Causes and Solutions
Klaas Knot
President, De Nederlandsche Bank
Asia Society, Hongkong
15 October 2012
1
The eurozone and the global economy
Population
GDP
95%
81%
19%
5%
RoW
euro area
RoW
Trade in Goods
Bonds, equities and bank
assets
23%
86%
14%
RoW
2
euro area
euro area
77%
RoW
euro area
European debt crisis
2-year government bond yields
Percent
25
20
15
10
5
0
jan-11
jul-11
Spain
3
jan-12
Ireland
jul-12
Portugal
Italy
Some convergence prior to the crisis...
Cumulative growth differentials with Germany
160
Ireland
Greece
Spain
140
Italy
Netherlands
Portugal
120
100
80
1998
4
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
…but with borrowed money…
Average annual growth rate of credit to private sector: 2000-2011
16
14
12
10
8
6
4
2
0
DE
5
NL
IT
PT
IR
SP
GR
…and accompanied by inflation…
Cumulative differentials compared to EMU total : 2000-2007
12
10
8
6
4
2
0
-2
-4
-6
DE
6
IT
NL
PT
SP
IR
GR
…reflecting wage developments
7
Current account balance
percent of GDP
10
5
0
-5
-10
-15
Netherlands
Germany
Italy
Ireland
Spain
Portugal
Greece
-20
1998
8
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Governments went back to old habits
Budget deficits (% Gdp)
3
Start EMU
0
-3
-6
-9
but relapse after admission
Improvements in the
run-up to EMU
-12
-15
-18
1992
1995
Greece
9
1998
2001
Italy
2004
2007
2010
Portugal
“On/off”market discipline
20
Germany
Italy
Netherlands
18
16
Greece
Portugal
Ireland
Spain
Start EMU
14
12
10
8
6
4
2
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
10
A stable design of EMU
• Strengthening growth potential and
competitiveness
• Politically independent enforcement of the fiscal
rules, guarding the debt ceiling of 60%
• European supervision, resolution and DGS
• Eurobonds as the capstone of EMU?
11