The euro crisis. A tale of divergences Enrique Alberola(*)
Master de Gestión Bancaria Valencia, 6 de Mayo
(*) The views expressed here do not necessarily coincide with those of Banco de España or the Eurosystem
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OUTLINE
• Two issues • Update of economic situation and perspectives • Progress in crisis management and prevention • Under a very specific light: Divergence, n. 1. The act of moving away in different direction from a common point; 2. A difference between conflicting facts or claims or opinion
Economic The ones you see Political Economy The ones you perceive
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DIVERGENCE IN THE DYNAMICS OF CRISIS AT THE GLOBAL LEVEL
Global economy
VIX $Y $S Y S T E MIC $R IS K $ME AS UR E $(S R M)$(a) %
Euro Area Euro periphery
90
30
75
25
60
20
45
15
30
10
15
5
0 2007
0
2009 2010 2011 2012 2013 VIX SRM1(Escala1dcha.) (a)1S R M:1P robabilidad de1una1 quiebra1s imultánea1de1dos 1o1más 1 g randes 1g rupos 1bancarios
Ñ
2008
sas
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ECONOMIC DIVERGENCES WITHIN THE EURO AREA. Growth dynamics and internal adjustment •
Euro area double dip, with large divergences
•
Internal demand slump is very severe in periphery, in core it is stagnant
EVOLUCIÓN DEL PIB REAL 2007T1=100
%
105
100
95
90 2007
82%
2008
2009
2010
2011
2012
ESTADOS.UNIDOS
ZONA.DEL.EURO
ITALIA
ALEMANIA
PORTUGAL
ESPAÑA
GRECIA
DEMANDA INTERNA, IMPORTACIONES, EXPORTACIONES Y PIB VARIACIÓN 2008-2012
15 10 5 0 !5 !10 !15 !20 !25 !30 !35 !40 GR
IE
P T ES
IT UEM NL
DEMANDA7 INTERNA EXPORTACIONES
FI
FR BE DE AT
IMPORTACIONES PIB
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ECONOMIC DIVERGENCES. External adjustment •
Extremely sharp in periphery. Spain > 10 pp GDP
•
Limited, insufficient in core Global imbalances adjustment, G-20 & euro area 15
SALDO DE LA BALANZA POR CUENTA CORRIENTE
% 8del8P IB
Current'account' balance'in'2012
10 5 0
!5 !10 !15
rage d re s lu rp su GER sion line Regres
NED Less than ave uction
10
Improve surplus 5
ge an avera More th duction re it c fi de
0
IRL
AUT BEL ITA
ESP
FIN FRA
POR 05 GRE
Worsen deficit 010
!20 GR P T ES
2008
IE
IT
1998
FR UEM BE
2012
FI NL AT DE
PROMEDIO8 1999!2012
015 015
010
Sources:;Eurostat,;IMF;;and;Banco de;España de; España
05
0
5
10
15
Current'account'balance'in'2007
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ECONOMIC DIVERGENCES. Internal devaluations •
Competitiveness adjustments have been remarkable. • Spain has recovered more than 70% of previous loss
•
…at a high cost. Productivity =>100 145 140 135 130 125 120 115 110 105 100 95
C L U R E L ATIVOS , DE ,E S PAÑA,FR E NTE ,A,L A,Z ONA, DE L ,E UR O 120
1998=100
115 110 105 100
IE ES G R PT
IT NL F R B E UEM F I AT DE
2008
2012
95
1998 2000 2002 2004 2006 2008 2010 2012 ADG INTERNATIONAL AFFAIRS
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ECONOMIC DIVERGENCES. Indebtedness •
Easy financing leads to excess indebtedness in the periphery • But not only (NL), not always (IT)
•
Reduction in denominator –income/wealth- limits the process of deleveraging
E ND E UD AMIE NT O*H OG AR E S
% 2R B D 300 250 200 150 100 50 0
2000
2008
DE
FR
IT
FI
IE
GR
2012 ES
NL
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ECONOMIC DIVERGENCES. Fiscal adjustment •
Fiscal consolidations feasible in the core
•
But extremely difficult and risk of becoming self-defeating in the periphery
S AL D O&P R E S UP UE S T AR IO
% 4P IB
D E UD A%P ÚB L IC A
% 3P IB
8 6 4 2 0 !2 !4 !6 !8 !10 !12
180 160 140 120 100
80 60 40 20
2000
DE FI
2008
FR PT
IT IE
0
2012
ES GR
NL
DE FI
2000
FR PT
2008
IT IE
ES GR
2012
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NL
8
ECONOMIC DIVERGENCES. Financing •
Financing stress on sovereigns and overall • Lead to extreme divergences.
•
Reflecting a massive capital reversal…to the core
FINANCIACIÓN DEL TESORO TIPOS DE INTERÉS A 10 AÑOS
% 16
15
14
FLUJOS FINANCIEROS CON EL EXTERIOR (a) (Acumulado desde diciembre de 2009 hasta diciembre de 2012) % -del-P IB
10
12 10
5
8
0
6
!5
4
!10
2
0 03
04
05
ALEMANIA ESPAÑA
06
07
08
09
FRANCIA PORTUGAL
10
11
12
13
!15 2010
ITALIA IRLANDA
2011
2012
ALEMANIA,-HOLANDA,-FRANCIA-Y-FINLANDIA ITALIA,-ESPAÑA,-PORTUGAL-Y-GRECIA
9
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ECONOMIC DIVERGENCES. The role of ECB •
Liquidity provision through TARGET alleviates the strains. • Unconventional policies are decisive • Sort of international reserves But the capital draught remains
2004Q1
!250 !350 !450
2011Q3
!50 !150
2011Q1
50
2010Q3
150
2010Q1
250
2009Q3
Luxembourg
2009Q1
Spain
2008Q3
Portugal
350
2008Q1
Italy
Netherlands
2007Q3
Ireland
450
m.m.2USD 1,400 1,200 1,000 800 600 400 200 0 !200 !400
2007Q1
Greece
2006Q3
France
Germany
2006Q1
550
Finland
2005Q3
650
E UR O (AR E A(F INANC IAL LY (S T R E S S E D (C O UNT R IE S ENTRADAS(FLUJOS(FINANCIEROS(0ZONA(EURO,( F INANC IAL (INF L O WS PAISES(CON(ESTRÉS(FINANCIERO
2005Q1
Net.Balance.with.the.Eurosystem./.Target.[bn.€] 750
2004Q3
•
Otra2inversión,2autoridades2monetarias2(variación2de2pasivos) OT H E R (INVE S T ME NT.(MONE TAR Y (AUT H OR IT IE S ((OI/MA) Euro.Crisis.Monitor Institute.of.Empirical.Economic.Research. Osnabrück.University
Entradas2flujos2financieros2!excluyendo2OI,2autoridades2monetarias OT H E R (F INANC IAL (INF L OWS ,(E X C L .(OI/MA Desmbolsos2de2programas2del2FMI/UE R E INB UR S ME NT S (F R OM(OF F IC IAL (P R OG R AMME S (IMF /E U
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POLITICAL ECONOMY DIVERGENCES EMU fragile foundations • Economic • Disparities in economic structures • Markets are procyclical, no discipline • EMU shock destabilizing
• Institutional • Imbalances dismissed • Failure of fiscal discipline framework • Implications financial integration dismissed • Lack of crisis management mechanisms
Euro crisis
CRISIS MANAGEMENT AND RESOLUTION (the short run)
CRISIS PREVENTION (the long run/ end point) Deep institutional reform More integrated Europe
Closely interlinked Economic rationale -refoundation -moral hazard Political rationale -bargain core-periphery
Rescues & backstops v Adjustment
DIVERGENCE
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POLITICAL ECONOMY DIVERGENCES. Crisis management and resolution • Traits and patterns • Slow, dubitative response. Discoordination, cacophony, undecisiveness • Sharing of responsabilities gives way to shirking of responsabilities • Increasing credibility gap. • Painful adjustment with little return so far • Back and forth from the brink • Action is only under pressure • Outcome • The extension of crisis has not been contained: GR, IE, PT, SP-b,CY,… SL? • Increasing strains among actors • Disproportionate role of ECB, relative to national governments • Credible backstops are evasive • Some remarkable bright spots: • Regain access to markets, reduction of financing costs • Progress in resolution schemes: ESM, successor of EFSF ADG INTERNATIONAL AFFAIRS
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POLITICAL ECONOMY DIVERGENCES. Crisis prevention •
Deepening of crisis fosters institutional reform
•
Two stages • Reaction to first wave of crisis (2010-2011)
