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