Transcript The Common House of Europe

The Common House of
Europe
basic elements and new
challenges
Looking to the mirror
• We have „lost“ about 2000 bilion euro between 2007 –
2010 due to the crisis
• This corresponds to the GDP of France or to 11% of
Europe´s cumulative debt
• EU GDP has slowed substantially since crisis
• 23 million people are now unemployed in the EU (10% of
the working age population), 16 mil. in the Euro area
• Unemployment is twice as high for young people. It has
increased sharply due to the crisis and is now over 20%
Bratislava
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Still in shock and chaos?
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Public aid and guarantees to the financial sector amounted to 4,6 trilion
euro over period, i.e. 37% of EU GDP
Limited overall economic demand
The crisis has resulted in a shortage of credit for non-financial firms and
households
Non-financial corporations have accumulated debts
Household debt increased
The level of GDP dept has increased from 60% to 80% as a result of crisis
A Number of countries have led their borrowing costs to rise
In 1995, services accounted for about 2/3 of the total economy, in 2010
about 3/4 of the economy
Job creation was driven by the service sector. Primary and secondary
sectors have lost about 10 million jobs since the mid 1990s
London
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Employment - jobs
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In 2000, 22% of the jobs required high qualifications while 29% required low
qualifications. In 2010, it was reverse
Apart from the car sector, a wide range of industries has lost jobs
For every job in manufacturing it is estimated that a further complementary
job is needed in a related business service. In total, some 74 million jobs
therefore depend on manufacturing
The high-tech sector represented 5,5% of total employment and about 8%
of EU´s GDP
The crisis cut our growth potential by one quarter, mainly as a result of job
losses and limited working hours. Ageing will reduce our workforce and this
will further reduce our capacity to grow
Roma
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EU and US
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The gap of the EU income with th US - over ¾ of the gap is explained by
lagging productivity
Labour productivity grew much more slowly in the EU than US
The EU is lagging behind the US regarding investment in hardware,
software and communications equipment. If the EU matched US levels, this
would add about 5% to the GDP level in 2020
More than half of the US leading innovators are „young“ (born after 1975), in
US young leading innovative companies account 35% of total, in EU 7%
It currently takes 15 days to start a businnes in Europe, and only 6 in the US
EU firms much less access to venture capital, many administrative barriers
Average EU costs of patenting is close to 35 000 euro, in US 1 850.
Labour costs are growing again in EU
60% of Europeans have low or no skills, worrying also for IT graduates, the
EU may lack 700 000 IT professionals by 2015
Against Eurozone and Wall Street
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Education!
Every year, 6 milion of young Europeans drop out of school with at best a
lower secondary education
About 80 million people in EU have only low or basic skills
In the EU, only about one person in three aged 25 – 34 has completed a
university degree, compared to well above 50% in Japan and more than
40% in the US
About 40% of consumers have used internet to purchase goods and services,
but only 9% have done so from another Member State
There is little correlation between spending on primary and secondary
education per pupil and PISA results. Many countries with high spending
levels only show around average PISA reading scores
Lisbon, Madrid
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Reasons of the Euro area crisis
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Product of the interaction among several underlaying forces:
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Mispriced risk
Macroeconomic policy misbehaviour over many years
Weak prudential policies and frameworks
Missing structural reforms
Markets became increasingly integrated, with enormous cross-border bank landing
BUT supervision and regulation remained at a national level
The ECB was explicitly NOT allowed to be a lender of last resort, YET markets
operated under the assumtion that the authorities (governments and central
banks) would be ready with a safety net if things went wrong
The perception that economies or banking systems were too big or too complex to
fail underlay the idea that their liabilities had implicit quarantees
Drastic consequences
Benelux
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Recovery – where we are today?
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Global recessions: of 1975, 1982, 1991, and 2009, which involved declines
in world real GDP per capita
2009 – more severe and synchronized global recession during the post war
period
– - declines were much deeper in 2009
– - unprecedent degree of macroeconomic policy expansion has helped drive the
current recovery
– - much higher unemployment
– - expensive social security system
Common features of recovery:
- CREDIT BOOMS (bustle in credit and housing markets)
- Lack of timely, credible and coordinate policy strategy of the financial turmoil
- Meagre growth as a result of dissappointing growth in domestic consumption and
investment driven by the legacy of the financial crisis (balance sheet repair, weak
credit expansion and problems in housing markets – loss of competetivness
- Need of reforms
Paris, Wien
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Continued high risks
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Tightening of Fiscal Policy
In the euro area , sovereigns and banks face significant refinancing
requirements for 2012, estimated at 23% of GDP
Fiscal withdrawal is projected to amount to about 1,5% of GDP (US 1 ¼
GDP)
Gross-dept-to-GDP ratios will rise further (in G7 to about 130% in 2017,
256% in Japan, 124% in Italy, 113% in US and 91% in the euro area
REASONS:
- weak confidence
-fiscal consolidation
- tight financial conditions
- slow, if any, implementation of reforms
Ljubljana, Berlin, Helsinki
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What about „me“?
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Overall down-ward trend in the labor share, because:
– College premium (the premium on wages of those with bachelor´s
degree)
– The superstar effect (the disproportionate compensation of the top 1%
of the income distribution
– „hollowing out“ of the middle class as a result of skill-biased
technological change or the offshoring of medium-skill jobs, and law
wages and unemployment
The labor share is typically countercyclical – rising during recessions and
falling during recoveries
Prague, Budapest
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Politicians? Or policy challenges
• BY 2015, 90% of future economic qrowth will be generated outside
of Europe
• Downside consumer and investor confidence
• Recovery remain anemic with large output gaps
• These challenges call for more policy action.
– Implementing medium-term fiscal consolidation plans
– Maintaining a very accommodative monetary policy stance
– Providing ample liquidity to help repair household and financial
sector balance sheets
– Resolve crisis without delay
– Structural reforms: pensions, health care systems, labor and
product markets, housing sector, financial sector and education
Greece
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Why once more? And how many
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Same reasons for recovery.
– Housing
– Financial market problems, conditions for bussiness
– Structure of economy and education
Debt restructuring is a bit better solution than increase of taxation.
Restructuring is political vote – because of votes.
Factors: level of debt service and cofidence of the country
These problems are likely to continue sapping the strength of the recovery
UNLESS
Policy makers adopt stronger policies to address them.
Or: this is only the end of PONZI scheme?
Greece
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