Transcript Slide 1
Current challenges with EMU
Economic differences,
euro area enlargement and
the revised Stability and Growth pact
Dr. Jürgen Kröger
The 12th Dubrovnik
Economic Conference
Dubrovnik, June 28 – July 1 2006
CUMULATED GDP GROWTH IN
THE EURO AREA
Total period : 1999 – 2006
23
50
17
14
10
17
16
10
12
30
33
CUMULATED HICP GROWTH IN
THE EURO AREA
Total period : 1999 – 2006
13
27
21
16
12
14
15
19
24
25
25
CONTRIBUTIONS TO POTENTIAL
GROWTH
Total period - 1999-2006
25
20
Growth rate ( in % )
15
10
5
0
BE
DE
EL
ES
FR
IE
IT
LU
NL
AT
PT
-5
Labour (persons)
Total Factor Productivity
Capital Accumulation
FI
CONTRIBUTION TO THE
INCREASE OF GDP OF DOMESTIC
DEMAND EXCLUDING STOCKS
8
6
DE
ES
FR
IT
4
2
0
-2
1998
2000
2002
Source: EU Commission, AMECO database
2004
2006
CONTRIBUTION TO THE INCREASE
OF GDP
Exports of goods and services including intra-EU
trade
4
2
DE
ES
FR
IT
0
-2
1998
2000
2002
Source: EU Commission, AMECO database
2004
2006
(Total period : 1999 – 2006, % of GDP of preceding year)
GDP
GROWTH
Contribution to the increase of
GDP of
Domestic
Demand
Exports of
goods and
services
Imports of
goods and
services
Germany
10
5
18
-12
Spain
29
38
9
-17
France
17
20
7
-10
Italy
10
12
2
-4
Source: EU Commission, AMECO database
REAL SHORT-TERM INTEREST
RATES
2
FI
Growth rate ( in % )
FR
DE
1
AT
NL
BE
IT
0
PT
IE
-1
ES
EL
-2
Source: EU Commission, AMECO database
Average 2002 – 2005, 3 Month rate
Deflator of private consumption
INTRA-EURO AREA REAL
EFFECTIVE EXCHANGE RATES
120
Portugal
115
Netherlands
110
Italy
105
Spain
Greece
Ireland
Bel / Lux
100
Finland
France
95
Austria
90
Index 1998 = 100, ULC Total
Germany
85
1998
1999
2000
2001
2002
2003
2004
2005
2006
SPAIN
MCI AND ITS CONTRIBUTORS
Inverted scale
-2
Lo o sening
-1
0
1
REER-34
RIR
Tightening
2
1999
2000
M CI
2001
Source: Commission services
2002
2003
2004
2005
2006
SPAIN
Balance on current
transactions with
the rest of the world
0
-1
-2
-3
-4
-5
-6
-7
-8
-9
(in % of GDP)
1998
1999
2000
2001
2002
2003
2004
2005
Source: EU Commission, AMECO database
2006
SPAIN COMPETITIVENESS
(ULC Total Economy,
Index 1988 = 100)
130
Real Effective
Exchange Rates
vs (rest of)
EUR12
120
110
100
90
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
CURRENT ACCOUNT BALANCE
75
Cumulative 1999 – 2006, % of GDP
Growth rate ( in % )
50
FI
BE
Current account balance
25
DE
FR
0
IE
AT
IT
-25
ES
-50
EL
-75
PT
Source: EU Commission, AMECO database
NL
Stylized facts of successful
real catching-up
Phase 1 : Upswing
Initially real expected rate of upturn has to be high
In order to avoid overheating monetary policy has to
be used, not fiscal policy
Tight money in the upswing is necessary to
Contain inflation
Establish demand supply equilibrium
Help establishing inter temporal equilibrium
Appreciation reduces import costs
Current account deficit, covered by FDI, is a
counterpart to fill the supply-demand gap.
Stylized facts of successful
real catching-up
Phase 2 : Consolidation
Higher investment increases the capital stock :
Potential output rises
Domestic supply approaches domestic demand
The marginal real rate of return shrinks to the level of
partner countries
Monetary policy is gradually easing
Net exports rising as exchange rate depreciates
Current account moving towards a sustainable level