Transcript 10 - RNH

Why further eurozone integration
could hurt Europe’s competitiveness
1
Europe’s four crises
Financial
crisis
Debt
crisis
Political
crisis
Bank
crisis
2
Competitiveness
crisis
The role of the euro

The crisis started in the US

but...
...the euro locked it in:
–
–
–
–
3
One-size-fits-all interest rates
Perverse incentives
Exposed tremendous imbalances
Political stalemate
Debt levels in the eurozone (% GDP)
4
Debt crisis: Financing needs PIIGS
2013 - 2015 (€bn)
0
50
100
150
200
250
300
350
400
450
500
2013
Greece
Ireland
2014
Italy
Portugal
Spain
2015
5
Bank crisis: Size of banks relative
to GDP
6
7
Greece
Ireland
Italy
Portugal
Spain
SMP
Total
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
€ millions
Banking crisis: The reliability on
ECB cash
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
Bank crisis / debt crisis: Net Balance
within Eurosystem / Target [€bn]
DNLF = Germany, Netherlands, Luxembourg, Finland
GIIPS = Greece, Italy, Ireland, Portugal, Spain
1,250
DNLF
750
250
-250
-750
GIIPS
-1,250
8
Euro Crisis Monitor
Institute of Empirical Economic Research
Osnabrück University
Competitiveness: Real unit labour
cost trends selected euro
members (1999=100)
150
140
Germany
130
Ireland
Greece
Spain
120
France
Italy
110
Cyprus
Portugal
100
90
9
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Competitiveness: Internal
devaluation
50
45
Difference to German labour costs (%)
40
35
30
Peak
25
2011
2012
20
15
10
5
10
0
Greece
Ireland
Italy
Portugal
Spain
Competitiveness: Unemployment
levels (%)
45
40
35
30
25
20
15
10
5
0
11
EU (Total)
PIIGS (Total)
EU (Youth)
PIIGS (Youth)
Global competitiveness
12
Global competitiveness
Labour productivity growth (%)
4.0
3.0
2.0
1.0
0.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-1.0
-2.0
-3.0
Euro area
13
Total OECD
Is fiscal / banking union the
answer?



14
“Inexorable logic” of the euro?
Joint back stop for banks (deposit guarantee
scheme / resolution fund)
Fiscal distribution (eurobonds / transfers)
1. Can Germany afford it?
Superman: "Easy, Miss, I've got you."
Lois Lane: "You...you've got me, who's got
you?"
15
Germany’s demographic trends
Figure: Eurozone population projections
selected member states 2010 - 2060 (millions)
90.00
80.00
70.00
60.00
DE
50.00
FR
40.00
IT
ES
30.00
20.00
10.00
0.00
2010
16
2020
2030
2050
2060
2. How to avoid moral hazard in a
fiscal / banking union?



17
Will it be possible to incentivise reforms in a
fully fledged fiscal / banking union?
How to avoid déjà vu?
Berlin’s answer: strict central controls
Political crisis: 17 national
democracies
17 national parliaments
 Electoral cycles
 Constitutional limitations
 Public opinion
 No demos
= Massive risk of political backlash

18
Support for a transferunion?
Support for greater eurozone integration vs debt pooling
(Germany)
83%
79%
In favour
Against
12%
19
Stronger coordination of economic
policies in the eurozone
Sources: Eurobarometer/ZDF
14%
Eurobonds
Support for central fiscal
controls?
Do you trust the EU (Portugal, Ireland, Italy, Greece, Spain)?
80
70
60
50
40
30
20
10
0
2001
20
2002
2003
2004
2005
2006
Trust
2007
Do not Trust
2008
2009
2010
2011
2012
What alternatives?



21
Muddle through: Cash for austerity
Transfer-union / bank-union: Who’ll be lender
of last resort? Political and economic price?
Euro break-up: Greece or more countries?