Transcript Six Issues
Economic and Monetary Union - Unfinished Business Howard Davies Director, LSE Convoco HVB Forum, Munich 10 May 2010 Source: The Economist, 29 April 2010. Six Issues 1. Fiscal Discipline The true Greek fiscal position was worse than reported Greece: notified vs. actual budget balances, % of GDP, 2000 – 2008 Source: Bruegel Policy Brief, March 2010. Solvency gaps are massive Fiscal tightening (% of GDP) needed between 2010 and 2020 to achieve 60% of GDP public debt ratio by 2030 Note: Primary balance (assumed to improve gradually during 2011-20 and then maintained constant until 2030) improvement needed to stabilise debt at the end-2011 level. Japan’s target public debt ratio is 80% of GDP. Source: Citigroup Global Markets, Global Economics View, 26 April 2010. Six Issues 1. Fiscal Discipline 2. Competitiveness There has been a remarkable divergence in competitiveness Real exchange rate* and relative export performance, cumulative change between 1999 and 2008 *Real exchange rates are based on unit labour costs. Source: Bruegel Policy Brief, March 2010. Greece is the frontrunner as the most vulnerable country of the euro area Vulnerability index Source: CEPS Policy Brief, No. 202, February 2010. Six Issues 1. Fiscal Discipline 2. Competitiveness 3. European Monetary Fund European Monetary Fund (Buiter) - - - Established under Enhanced Cooperation provisions of the Lisbon Treaty Subscriptions in proportion to Euro Area countries’ equity stake in ECB € 2 trillion subscription, of which € 200 billion paid in Board: Euro Area member states, EC, ECB Germany would finance more than a quarter of the EMF Relative shares in the ECB’s capital in euro area, % of EA share Source: Citigroup Global Markets, Global Economics View, 26 April 2010. Six Issues 1. 2. 3. 4. Fiscal Discipline Competitiveness European Monetary Fund Financial Regulation The de Larosière framework European Systemic Risk Council (ESRC) (Chaired by President ECB) Macroprudential supervision Members of ECB/ESCB General Council (with alternates where necessary) + Chairs of EBA, EIA & ESA Information on micro-prudential developments + European Commission Early risk warning European System of Financial Supervision (ESFS) Micro-prudential supervision European Banking Authority (EBA) European Insurance Authority (EIA) European Securities Authority (ESA) National Banking Supervisors National Insurance Supervisors National Securities Supervisors Source: De Larosière Report, February 2009. Six Issues 1. 2. 3. 4. 5. Fiscal Discipline Competitiveness European Monetary Fund Financial Regulation Fiscal Transfers Six Issues 1. 2. 3. 4. 5. 6. Fiscal Discipline Competitiveness European Monetary Fund Financial Regulation Fiscal Transfers Euro System Reform The ECB is the most independent, and least accountable central bank Accountability vs. Independence, adapted from Sousa (2002) Source: CEPR Discussion Paper No. 5470, January 2006 GDP and voting weights are very different Distribution of voting rights and economic size in EMU Current situation Hypothetical EMU 24 Note: Relative size based on GDP. Source: H Berger (2006), Optimal central bank design: Benchmarks for the ECB. Central/ Regional voting in the Federal Reserve and the ECB Ratio of regional to central votes 3 2.5 – 1.0 2.5 2 1.5 1.1 – 1.0 1 0.7 – 1.0 0.5 0 EMU 15 Fed Bundesbank Source: Heinemann and Huefner (2004). Is the view from the Eurotower purely European? Economic and Monetary Union - Unfinished Business Howard Davies Director, LSE Convoco HVB Forum, Munich 10 May 2010