Transcript Argentina`s Currency Crisis - Inter

Italy: emerging from the crisis
XXXVII Meeting of the Network of Central Banks and
Finance Ministries
The Inter American Development Bank
Washington, April 17, 2013
Giovanni Majnoni
Banca d’Italia
2008-2012: Italy was hit harder than other euro
area countries by the crisis with a double dip …
Euro-area GDP
(indices 2005=100)
112
112
Euro area
Italy
Germany
France
110
108
110
108
106
106
104
104
102
102
100
100
98
98
96
96
2005
2006
2007
2008
2009
2010
2011
2012
… caused by the sovereign debt crisis outbursts in
2011 and again in the summer of 2012.
700
600
Italy 5 year CDS Spreads (in basis points)
500
400
300
200
Sovereign
Average 4 large banks
0
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
100
The economic impact has been severe on households,
which saw their real income and saving rate fall, …
Gross Real Income (LHS scale) and saving rate (RHS scale)
113
20
Reddito disponibile lordo reale (1);
indice (1999=100), scala di sinistra
110
valori puntuali
18
media mobile di 4 termini
107
16
104
14
101
12
98
Propensione al risparmio (2);
punti percentuali, media mobile di
4 termini; scala di destra
95
10
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
… on the corporate sector, with industrial
production falling 25% from its pre-crisis level, …
Industrial production: changes (LHS scale) and levels (RHS scale)
8
124
Q/Q change (left change)
6
120
Point data
Three terms moving average
4
116
2
112
0
108
-2
104
-4
100
-6
96
-8
92
-10
88
2007
2008
2009
2010
2011
2012
2013
5
… and on the banking sector, with credit quality
progressively deteriorating.
Loans to non-financial companies: Net balance between loans with
improved and worsened ratings
(as a percentage of loans outstanding at the beginning of the period)
6
Overall economic resilience benefited from banking
sector’s “strong capital position” (2013 FSAP), …
Core Tier 1 ratio of banking groups
(percentages; end of period)
Largest 14 listed groups
Other groups
… banks’ strong liquidity position - liquid assets
largely exceed cash outflows (FSAP 2013) - and …
Net liquidity ratio of Italian banking groups
(average value as a percentage of total assets)
… their reduced exposure to the sovereign risk,
when compared with the recent past; …
Government bonds held by the banking sector
(as a percentage of the bond portfolio (blue line) and total assets (dotted line))
… from a built in process of fiscal consolidation that
has led to a high and increasing primary surpluses;…
Net liquidity position 1 ratio of banking groups
(average value as a percentage of total assets)
10
… from a replacement of faltering domestic
demand with foreign demand; …
BoP: Trade (blue line) and Current account (violet line)
(billions of euros; 12 month cumulative total)
… from the relative stability of real estate prices;
and …
Housing market: sales and prices
(indices 2005=100)
… from a social safety net that has helped reduce
lay offs, if not unemployment of a growing labor force.
Employment and Unemployment rates
Employment
(millions of people)
Unemployment
(percentage rate)
The underlying problem is a growth slow down
since mid-1990s ...
Per capita GDP
(index: US=100 – Source: Maddison, Conference Board)
...largely due to a productivity gap whose determinants …
... have been the subject of reforms in the last few
years notwithstanding obstacles to their enactement.
Small size of companies limits R&D, innovation, and productivity growth …
Chart: R&D expenditure as a % of GDP
… and so does a relatively poor and uneven business environment
Chart: WB Doing Business country rankings
Low productivity growth and a tax rate among the
highest of the euro area …
Tax burden: Italy vs. the euro area
17
… remain an impediment to needed improvements
in competitiveness.
Effective real exchange rate based on production prices
(1999=100)
18
Asymmetric exposure to real shocks remains a problem
of European integration and suggests that …
The challenges of European integration in a nutshell
In the 1990s the dilemma between greater integration and greater freedom
of trade and capital flows was that of the “Impossible Trinity” ( stable
exchange rates-effective monetary policy-free capital flows).
In 1999 the Monetary Union cut the Gordian knot of the Impossible Trinity
by removing the exchange rate.
Since the year 2000 challenges to stability within the EMU have been partly
similar to those of “dollarized economies”. Specifically:
1.
Seignorage loss  not relevant for Euro area countries because addressed at
inception through the revenue sharing mechanism (capital key)
2.
Lack of LLR  addressed in 2011 with the LTROs and in 2012 with the
OMT (work in progress with the Single Supervisory Mechanism (SSM) and
the Single Resolution Mechanism (SRM ))
3.
Greater exposure of participating countries to real and foreign shocks 
solution pending
19
… after a combination of policies to defuse the
crisis at the European and national level…
At the European level:
 Introduction of LTROs to defuse the bank-sovereign loop
 Introduction of OMT to defuse the sovereign-bank loop
 Steps toward the Single Supervisory Mechanism (SSM) and the Single
Resolution Mechanism (SRM) aim at two goals to support of LLR
effectiveness
At the Italian level:




Bring public finance on a sustainable path (reduce country risk)
Insure banking system resilience (high solvency and liquidity ratios)
Contain the destruction of productive skills through social safety nets
Promote productivity and competitiveness (labor market reform)
20
… economic policies must now focus on competitive
and growth gaps.
At the Italian level main areas of interventions are:
Public Finance



Extensive spending review (to reduce unproductive public expenditure)
Broad restructuring of taxation linked to the growth agenda (rebalancing
from income to real estate taxes)
Reduction of tax rates (especially in the labor market) through a parallel
reduction of the size of the underground economy
Growth agenda





Further opening-up of markets (especially services) to competition
Legislative and administrative simplification
Improving the efficiency of the labor market
Promotion of human capital (education)
Making the administration of justice more efficient
Data sources for updates

Economic Bulletin, Bank of Italy (published
quarterly)
http://www.bancaditalia.it/pubblicazioni/econo/b
ollec

Financial Stability Report, Bank of Italy (published
twice a year)
http://www.bancaditalia.it/pubblicazioni/stabilita
-finanziaria/rapporto-stabilita-finanziaria