Transcript Presentation

Reform in the SEEEs:
the role of the EU
Bank of Greece – University of
Oxford (SEESOX) Conference,
Athens, 16 October 2009
Peter Grasmann
European Commission,
Directorate General for Economic
and Financial Affairs*
* The views expressed in this presentation are exclusively those of the
speaker and do not necessarily reflect those of the European Commission
1
Overview
1. Traditional EU support to the
region
2. The crisis and EU-SEE relations
3. EU policy response to the crisis
4. Effects / outlook
5. Remaining agenda
6. Conclusion
2
1. Traditional EU support
to the region
2. The crisis and EU-SEE relations
3. EU policy response to the crisis
4. Effects / outlook
5. Remaining agenda
6. Conclusion
3
The political
geography:
• Member
States
• Candidate
countries
(at different stages
of accession
negotiations)
• Potential
candidate
countries
4
The traditional modes of support
delivery
1. “Pre-accession anchor”: incentive and
guidance for economic and political
stabilisation and reform. This becomes more
powerful during accession negotiations.
2. Technical assistance and peer pressure
3. Financial support:

Regional/structural funds, BOP assistance (MS)

Pre-accession instrument (IPA), macro-financial
assistance (MFA) (CC+PCC)
4. Visa liberalisation
5
The Pre-accession instrument
Annually around EUR 240 million for HR+MK
(candidate countries), and around EUR 500 million
for potential candidate countries
Pre-accession instriument (IPA) 2009- 2011, indicative planning - EUR million
Croatia, the former Yugoslav Rep. of Macedonia
potential candidate countries
Crossborder
coop.
Institution
building
Rural development
Human
resources
devel.
Crossborder
coop.
Institution
building
Regional
development.
6
Visa liberalisation
• 15 July 2009: European Commission
proposes visa free travel for citizens of the
former Yugoslav Rep. of Macedonia,
Montenegro and Serbia to Schengen
countries with new biometric passports.
Proposal must be approved by the Council.
– The former Yugoslav Republic of
Macedonia has met necessary conditions.
– Montenegro and Serbia: entry into force of
visa waiver depends on fulfilment of all
remaining conditions by the date of
adoption of the proposal by the Council.
7
Visa liberalisation (II)
– Albania and Bosnia and Herzegovina:
have not yet fulfilled all conditions
(pending:
fight against organised crime and corruption,
weaknesses in the procedure for delivering
passports and in border and migration
management).
If conditions are met, Commission might
make a new proposal including these
countries by mid-2010.
– Residents of Kosovo (UNSCR 1244/99)
will not yet benefit from visa liberalisation
as technical requirements not yet met.
8
Enlargement / accession
– Momentum of
further
enlargement has
slowed after the
end of 5th wave
of enlargement
– Decline in
popular support
– Issue is currently
not high on the
agenda of
Member States
Views of EU citizens on further enlargement
for
against
50
40
30
Oct
04
Apr
05
Oct Apr
05 06
Oct
06
Surce: Euro pean Co mmissio n
9
Apr
07
Oct Apr
07 08
Oct
08
Apr
09
Enlargement / accession negotiations
Croatia
– Candidate country since
2004
– Negotiations started in 2005
– Some delay due to, now
resolved, border dispute
with Slovenia
– recently reacceleration:
On 2 October, 6 further
negotiation chapters were
opened and 5 closed.
– Now 28 chapters are opened
and 12 provisionally closed.
10
The former
Yugoslav
Republic of Macedonia
– Candidate country
since 2005, but no
start of accession
negotiations
– Commission
proposed on 14
October to start
accession
negotiations (to be
approved by Council)
1. Traditional EU support to the region
2. The crisis and EU-SEE relations
3. EU policy response to the crisis
4. Effects / outlook
5. Remaining agenda
6. Conclusion
11
Sharp contraction in lending,
in particular to enterprises …
Euro area total MFI loans outstanding
% to non-financial corporations (sa and wda)
Euro area total MFI loans outstanding
% to private households (sa and wda)
20
20
15
15
10
10
5
5
0
0
annual rate of change
monthly rate of change, annualised
-5
-10
2004
2005
2006
Soure: ECB, own calculations
2007
2008
-5
2009
-10
2004
annual rate of change
monthly rate of change, annualised
2005
2006
Soure: ECB, own calculations
12
2007
2008
2009
Effects on real economy – fast, massive
percent
Euro area - foreign trade with non euro
area, change over last 3 months, s.a.
Exports
EU - Industrial production, s.a.
2005=100
120
Imports
10
110
0
100
-10
-20
2004
Total manufacturing
Intermediate goods
Capital goods
Consumer goods
90
2005
2006
2007
2008
2009
80
2004
13
2005
2006
2007
2008
2009
Trade spillover
EU merchandise imports (EUR values), annual growth rates in %
25
25
0
0
-25
-25
-50
BG
RO
HR
Total non-EU
-50
3 07 6 07 9 07 12 07 3 08 6 08 9 08 12 08 3 09 6 09
AL
BH
MK
RS
3 07 6 07 9 07 12 07 3 08 6 08 9 08 12 08 3 09 6 09
14
Bank linkages
• Strong build up of
foreign positions in
South East Europe
over the past 5
years
• Direct lending and
commercial
presence as
vehicles of foreign
banks’ market
participation
External positions of BIS reporting banks
vis-à-vis the banking sector, net, % of GDP
30
Bulgaria and Romania
Western Balkans
25
20
15
10
5
0
-5
2004
2005
2006
So urce: B IS, IM F, o wn calculatio ns
15
2007
2008
2009
Bank linkages (II)
• Main drivers:
EU banks
External positions of banks (total) exchange-rate adjusted changes
USD bn
• Only recently
there has been
a correction
2000
1000
0
-1000
-2000
2004
All countries
EU*
2005
2006
So urce: B IS - *B IS-repo rting co untries
16
2007
2008
2009
SEE and the EU: the contribution
of the crisis
– The financial and economic crisis has a
severe and lasting effect on economic
stabilisation in SEE and integration with
the EU, unless the crisis is in the EU
itself properly addressed.
– The crisis was accompanied by a
massive slowdown in cross-border
economic transactions and momentum
for political integration
– Crisis resolution, if not done properly,
can aggravate this development
17
1. Traditional EU support to the region
2. The crisis and EU-SEE relations
3. EU policy response to the
crisis
4. Effects / outlook
5. Remaining agenda
6. Conclusion
18
IPA –crisis-related ad-hoc measures
o
July 2009: €100 million budget support for
Serbia (first time budget support via IPA)
 Two tranches, each EUR 50 million,
autumn 2009 and first half 2010
 Conditions for payment:
o IMF programme compliance
o specific conditions
(short-term reform in public finance
management, integration with the EU,
implementation of laws on competition and
state aid control)
19
IPA - crisis-related ad-hoc measures (II)
o
August 2009: € 39 million financial crisis
response package for Bosnia and Herzegovina


Support of development of SMEs, investment in
infrastructure transport, environment and
energy; funding of Deposit Insurance Agency
These EU grants are part of overall Crisis
Response Package for the WB that should
total €150 million in EU grants and €600 million
in IFI loans
(i.e. EIB, EBRD, KfW)
20
Maintaining orderly bank behaviour
o
o
o
The EU, in close co-operation with major
IFIs, tried to secure a continued
engagement of major European banks in
the countries in the region.
This initiative tried to address a possibly
destabilising disorderly rush of foreign
banks out of individual countries, in
particular programme countries.
For some (i.e. Hungary, Romania, (Latvia)
Bosnia and Herzegovina, Serbia) formal
discussions led last spring to informal
(not legally binding) agreements

Banks to maintain their country exposure
as compared to a certain, defined,
reference date.
21
Maintaining orderly bank behaviour (II)
o
Problems
 Monitoring and enforcement
 Deleveraging made impossible?
 Knock on effects on other markets?
Regional approach?
22
Overriding priority: Stabilising
the EU economy
1. Stabilisation of EU financial sector and
economy has emerged as main priority,
for the EU and the non-members in
South East Europe
2. Main emphasis
 Stabilisation and repair of the
banking sector
 Support to the economy: public
spending and structural reform
23
EU public support to banks across MS
EU public interventions in the banking sector
(total effective measures - % of GDP, as of end August 2009)
171
30
20
EU average
10
0
BE BG CZ DK DE EE EL ES FR IR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SW UK
24
Stress testing of banks
• EU asked the Committee of European Bank
Supervisors (CEBS) to coordinate an EU-wide test of
the banking system’s resilience to shocks.
– COM and ECB input for economic variables and
risk parameters
– Test was applied by national supervisors on 22
major cross-border institutions with.
• Purpose
– Information: consistent and comparable results
– Confidence building: overcome negative effects
of different and often inaccurate estimates of
likely bank exposures
• Results were delivered in September and are being
assessed
25
Monetary support
Eurosystem's lending to MFI (EUR billion),
Jan. 2007- Jun. 2009
50
GR
LU
SI
FI
IT
PT
SK
AT
Eurosystem's lending to MFI (EUR billion),
Jan. 2007- Jun. 2009
125
250
100
200
40
30
75
20
10
0
Jan 07
Jul 07
Jan 08
Jul 08
IE
ES
NL
DE (rhs)
fr (rhs)
150
50
100
25
50
0
Jan 07
Jan 09
26
0
Jul 07
Jan 08
Jul 08
Jan 09
Exceptional financial assistance to
Member States
• 3 Member States particularly Balance-of-payments assistance to
Member States (EUR billion)
hit by crisis (Hungary,
Hungary Latvia Romania
Latvia, Romania)
Total assistance
20
7.5
20
EU (Art. 119)
6.5
3.1
5
• Very high external and
Instalment 1
2
1
1.5
public financing needs
Instalment 2
2
1.2
• Hence, EU balance-ofIMF
12.5
1.7
12.95
payments support
Instalment 1
4.9
0.6
5
Instalment 2
2.3
• Burden sharing with other
Other multilaterals
1
0.5
2
donors (esp. IMF)
Bilaterals*
2.2
• Economic policy
conditionality and tranching * SE, DK, FI, CZ, PL, EE
• Also increase of total amount for EU BoP assistance:
EUR 12 billion EUR 25 billion EUR 50 billion
27
Supporting the economy
• The implementation of the European
Economic Recovery Programme is on
track.
– Projected cumulative 5 percentage points
of GDP of overall support to the EU
economy in 2009 and 2010
– Stimulus measures are estimated by
Commission services to contribute about ¾
of a percentage point to real GDP growth in
2009 and about ⅓ of a percentage point in
2010
28
The European Economic Recovery
Programme (EERP)
•
•
•
Adopted on (26 Nov 2008)
Monetary and credit conditions with role for
central banks, banks, EIB and EBRD
Fiscal policy
1. should be timely, temporary, targeted and co-ordinated
2. should mix revenue and expenditure instruments
3. should be conducted within the Stability and Growth Pact
4. should be accompanied by structural reforms that
support demand and promote resilience
29
The EERP (II)
•
Actions in the four priority areas of the Lisbon
Strategy in order to adapt to long-term
challenges and to raising potential growth
People
Business
Infrastructure and
energy
Research
and
Innovation
1. Launch a major European employment support initiative
2. Create demand for labour
3. Enhance access to financing for business
4. Reduce administrative burdens and promote
entrepreneurship
5. Step up investments to modernise Europe's infrastructure
6. Improve energy efficiency in buildings
7. Promote the rapid take-up of "green products"
8. Increase investment in R&D, Innovation and Education
9. Develop clean technologies for cars and construction.
10. High-speed Internet for all
30
Roadmap for regulatory reform
EU roadmap for regulatory reform in response to
the financial turmoil focuses of 4 key areas:
1. Transparency (adequacy of disclosure of banks'
exposures relating to securitisation and Special
Purpose Vehicles)
2. Valuation standards (valuation of illiquid assets
and asset valuation standards used by non-bank
investors)
3. Prudential framework, risk management and
supervision
4. Market functioning (credit rating agencies,
securitisation models, non-regulated debt
markets and the mis-selling of mortgage credit)
31
Regulatory reform: in high gear
Proposals adopted, close to adoption, or in
preparation on a wide range of issues
 Capital requirements of banks
 Defining Tier I and hybrid capital
 Solvency requirements
 Pay structures and transparency
 Cross-border crisis management in banking
 Hedge funds
 OTC trading
 Rating agencies
32
Regulatory reform: of particular
interest for SEE
Some proposals might have a more direct
and tangible impact on banking in SEE
•Capital requirements of banks: foreign
currency mortgage lending
•Cross-border resolution of individual
banking crises
33
European Systemic Risk Board
• Establishment of a new framework for
macro-prudential supervision,
 a European Systemic Risk Board
• It will assess potential threats to financial
stability and, where necessary, issue risk
warnings and recommendations for action
and monitor their implementation.
• to be composed of representatives of
central banks, supervisors, Commission
and EFC,
ECB General Council will elect the chair
34
European System of Financial
Supervisors
• Establishment of European System of
Financial Supervisors
(three new European Supervisory
Authorities for banking, insurance and
securities markets)
• Objectives:
– upgrading the quality and consistency
of national supervision,
– strengthening oversight of crossborder groups through the setting up
of supervisory colleges
– establishing a European single rule
book applicable to all financial
institutions in the Single Market
35
European System of Financial
Supervisors (II)
• Binding and proportionate decisionmaking powers
– in respect of whether supervisors are
meeting their requirements under a
single rule book and relevant EU law,
and
– in case of disagreement between home
and host state supervisors, including
within colleges of supervisors.
• Supervisory powers as regards credit
rating agencies
36
Defending a level playing field
in EU banking
• Commission recognises that crisis justified the
granting of aid on the basis of Art. 87(3)(b) EC.
• It set out a coherent framework for the provision
of public guarantees, recapitalisation measures
and impaired asset relief by MS.
• Main rationale:
– ensure that rescue measures can pursue
objectives of financial stability and maintenance
of credit flows,
– minimising distortions of public interventions
between beneficiaries of aid in different MS,
beneficiaries with different risk profiles and
between beneficiaries and banks without aid
37
1. Traditional EU support to the region
2. The crisis and EU-SEE relations
3. EU policy response to the crisis
4. Effects / outlook
5. Remaining agenda
6. Conclusion
38
Future of financial intermediation
in Europe: market view
• Since March strong rebound of financials
(+ ~40% total, + ~90% financials)
Euro area DJ Euro STOXX - Price index
Euro area DJ Euro STOXX - Price index
125
125
100
100
75
75
50
50
Total,
Total, 2005-07=100
2005-07=100
Financials,
Financials, 2005-07=100
2005-07=100
Financials/total
Financials/total
25
25
0
0
1987
1987
1990
1990
1993
1993
1996
1996
1999
1999
2002
2002
2005
2005
25
2008
2008
39
0
Jan 07
Total, 2005-07=100
Financials, 2005-07=100
Financials/total (%)
Jul 07
Jan 08
Jul 08
Jan 09
Jul 09
Market correction went far
• This rebound
seems ahead of
actual business
conditions for
banking sector
leading to quickly
rising P/E ratios
Euro area DJ Euro STOXX - Banks
P/E Ratio (lhs)
Price to book value (rhs)
30
3
20
2
10
1
0
2004
40
0
2005
2006
2007
2008
2009
… with wide dispersion
(average 2006-07=100)
100
80
September 2009
• But large and
persisting
differences
among
institutions
(and countries)
Share prices of major European banks
60
40
20
0
0
20
40
60
February-March 2009
41
80
100
Short-term recovery expected
• Short-term
expectations:
modest recovery in
sight and largely
discounted
• Rising demand for
lending
ECFIN Business surveys - financial inter-
mediation* (EU): evolution demand
% balance
difference
past 3 months
next 3 months
40
20
0
-20
*witho ut insurance, pensio n funds
-40
2007
42
2008
2009
Demand for lending and the economy
ECB bank lending survey July 2009
• Similar factors
are driving
demand for
lending to
enterprises
Enterprise loans (change over past 3 months,
factors affecting demand, balance of replies)
25
0
-25
Fixed investment
Mergers&acquistions
Debt restructuring
-50
-75
2004
2005
43
2006
2007
2008
2009
Short-term recovery expected
• Confidence
indicators back
to levels of 1st
stage of crisis
(summer 2007 autumn 2008)
ECFIN Business surveys - financial inter-
mediation*: financial confidence indicator
% balance
EU
euro area
40
20
0
-20
*witho ut insurance, pensio n funds
-40
2006
44
2007
2008
2009
Economic outlook: Commission
Spring forecast
• Slow recovery for the 2nd half of 2009 and for
2010
• Even in 2010 growth dynamics is expected to
remain below pre-crisis levels
• EU will trail the US
• 2nd quarter was probably better than forecast
(for euro area: forecast -0.7%, outturn -0.1%
• New forecasts on 19 September (interim) and in
November (full-fledged)
45
Economic outlook: Commission
Spring forecast (II)
GDP (% over previous year)
GDP (% over previous quarter, annual rates)
US
5
EU-27
US
2
0
0
-5
-2
annual figures
quarterly figures
-4
2004
2005
2006
2007
2008
2009
2010
-10
2004
2009/2010: ECFIN spring 2009 estimates and forecasts
2005
2006
2007
EU-27
2008
2009
2010
ECFIN spring 2009 forecasts as of 2nd qu. 2009 (US 3rd qu.)
46
Economic outlook: Commission
Spring forecast (III)
Demand components:
• Mainly recovery of external trade and less
sharply falling investment
• Government consumption with consistently
positive growth
47
Prospects: Commission Interim
forecast September 2009
• In general confirmation of findings and forecasts of
Spring forecast
• Some reassessment of individual Member States:
 Germany and
France stronger
than foreseen in
spring
• Spain, Italy, UK
somewhat weaker
48
Economic outlook – medium term
• Crisis might have a more long-lasting
effect on potential growth in the EU
• Due to
– changes in financial intermediation
– Depletion of fixed assets and low
investment
49
1. Traditional EU support to the region
2. The crisis and EU-SEE relations
3. EU policy response to the crisis
4. Effects / outlook
5. Remaining agenda
6. Conclusion
50
Home-host countries
•Home-host country cooperation for
banking supervision and banking
crisis management
51
Cross-border banking and the size
of banks
• Size of large banks has
further increased in
Europe
• These are prominently
represented in crossborder activities/
representation in
emerging economies
• Discussion about size
of systemic banks
might have a back lash
52
2006=100
European banks,
volume of assets
top 15
no 16-100
ratio (rhs)
140
1.3
130
1.15
120
1
110
0.85
100
0.7
90
0.55
2006
2007
2008
Fiscal rebalancing
• Automatic stabilisers
and discretionary
spending let government
deficits globally surge
• Without massive policy
change, debt levels will
rise dramatically
General government budget (% of GDP)
General government budget (% of GDP)
50
50
45
45
40
40
35
35
Euro area expenditure
Euro area revenue
UK expenditure
UK revenue
30
US expenditure
US revenue
Japan expenditure
Japan revenue
30
25
25
2004
2005
2006
2007
2008
2009
2009/2010: ECFIN spring 2009 estimates and forecasts
2010
2004
2005
2006
2007
2008
2009
2009/2010: ECFIN spring 2009 estimates and forecasts
53
2010
Exit from bank bailout
Principles Commission Communication of 22 July:
1.
Beneficiary 2.
banks must
restore longterm viability
without state
support.
A thorough
restructuring
plan must be
based on
stress testing
and full
disclosure of
impaired
assets.
Bank and capital
3.
holders should
contribute to
restructuring costs as
much as possible, to
address moral hazard
and to create
appropriate incentives
for future behaviour.
This is achieved by
appropriate prices for
state support, to avoid
that aid is used to
finance marketdistorting activities
not linked to the
restructuring process.
54
National
interventions and
differences
between MS’
resources can harm
the internal market.
Temporary
restrictions on
acquisitions by
beneficiaries or
other behavioural
safeguards will
tackle competition
distortions between
banks with and
without public
support and banks
in different MS.
Exit from bank bailout (II)
• Applying these principles, exit from
public support to the banking sector
is a complex co-ordination challenge
for the EU
• Specifics are currently under
discussion
• Proper handling is also crucial for the
banking relations between the EU and
the SEE region
55
Exit from extraordinary monetary easing
• Readjustment of
global liquidity
• Reducing
balance sheets
of central banks
• A start is made,
it will be partly
“automatic”, but
it will take much
longer
Central banks' claims on banks (USD billion)
Euro area (lhs)
US (rhs)
1500
600
1000
400
500
200
0
2004
So urce: IM F
56
0
2005
2006
2007
2008
2009
1. Traditional EU support to the region
2. The crisis and EU-SEE relations
3. EU policy response to the crisis
4. Effects / outlook
5. Remaining agenda
6. Conclusion
57
Conclusion
1. Traditional means of EU support to the
region are intact.
2. Crisis had serious affected the economic
relations between SEE and the EU.
3. EU repair of its financial system and
support to its economy are underway.
Some first signs of success are
traceable.
4. Many issues remain to make Europe
more shock proof and ready to engage in
a next step of integration with SEE
58
Thank you very much
for your attention
59