Transcript Dias nummer 1 - Europabevægelsen

Ireland –
The tiger that tripped the euro
Leif Beck Fallesen
Europabevægelsen på Fyn
11.03.2013
[email protected]
Root cause: The financial crisis
• Global finance crisis started Spring 2007 on
the U.S. mortgage market – transmitted to
Europe in August 2007
• Near-death experience: Sept. 14th 2008,
Lehman Bros. collapsed and global credit
markets froze completely
• Debt, public and private, suddenly became
unsustainable, focus on PIGS; Portugal,
Ireland, Greece and Spain
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Why Ireland?
• Ireland had been the growth champion and
darling of international investors and banks –
including Denmark’s largest; Danske Bank
• Housing bubble; extremely sensitive to credit
(that disappeared)
• Like Denmark, Ireland is a small open
economy, global demand dropped sharply
• Public finances hit by lower growth and higher
unemployment
[email protected]
How Ireland tripped the euro
• Original euro blueprint for a solution; Irish
banks would write off bad loans, markets
would impose higher borrowing rates on the
Irish government, forcing it to enact austerity
policies. Irish problem solved in Ireland.
• BUT: 1) Banks could not write off bad loans
without going bankrupt 2) Financial markets
could or would not lend money and feared
next PIGS-collapse, i.e. CONTAGION
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GDP: Crisis unsolved?
Pct.
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
-6.0
-7.0
2008
2009
2010
Euro area
2011
2012
Denmark
Ireland
Source: Eurostat
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2013
2014
Crisis unsolved: Unemployment stubbornly high
Pct.
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
2008
2009
2010
Euro area
Denmark
Source: Eurostat
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2011
Ireland
2012
Crisis unsolved: Youth unemployment rate, >25
Pct.
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2008
2009
2010
Euro area
Denmark
Source: Eurostat
[email protected]
2011
Ireland
2012
Crisis over? : House prices
Index 2010 = 100
160
140
120
100
80
60
40
Euro area
Denmark
Germany
Source: Eurostat
[email protected]
Ireland
Crisis control; overnment gross debt, % GDP
Pct. of GDP
140.0
120.0
100.0
80.0
60.0
40.0
EU limit:
60% of GDP
20.0
0.0
2008
2009
2010
Euro area
2011
Denmark
Source: IMF
[email protected]
2012
Ireland
2013
2014
Crisis over? Public finance balance, % of GDP
Pct. of GDP
5.0
0.0
-5.0
-10.0
-15.0
-20.0
EU limit:
3% of GDP
-25.0
-30.0
-35.0
2008
2009
2010
2011
Denmark
2012
Ireland
Source: IMF
[email protected]
2013
2014
Crisis over? :Government bond yield, 10- y
Pct.
25
20
15
10
5
0
2008
2009
Denmark
2010
Greece
2011
Ireland
Source: IMF
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Germany
2012
Italy the new I in PIGS?
• Ireland was first in, and is looking to be the
first out of the battle to stay in the euro. Italy
is a much bigger I in PIGS
• Greece was able to reduce unsustainable debt
levels by a (partial) default. Foreign banks
(Danske) have written off private debts, will
public debt be reduced?
• Political challenge; will (any) government
survive implementing austerity policies?
[email protected]
Repairing the Euro:
Systemic change
• Real Europeans call it political (fiscal) union.
Sounds great to many in France, Benelux, and
Italy (with caveats). Non-starter in Germany,
Scandininavia and the U.K. (which may leave)
• Pragmatic changes required. Who saved the
euro; The European Central Bank. Who should
have more power: the ECB. Banking union is
all about controlling the banks
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Saving the euro (and the EU)
• More (pragmatic) European integration is
needed; irresponsible national banks and
contagion was not foreseen by euro architects
• Only a stronger EU (eurozone) can provide
collateral or finance stronger growth in the EU.
• Real challenge; austerity is suppressing growth
and more importantly: destroying the political
parties that support reforms (Italy: send in the
clowns …)
[email protected]