Post on 26-Dec-2015
European Debt CrisisJosé Luis Escrivá Managing Director – Head of Global Public Finance - Madrid, June 8th 2012
2012 TMA Europe Conference
European Sovereign Debt Crisis / June 8th 2012
Page 2
The euro zone is trapped in a vicious circle compounded by disorderly measures
GR
1Failure of European fiscal rules
3
PT
ITSP
GR
Peripheralcountries Low potential
growth with rigid labour and product markets
IR
22
SP
IRInappropriate responses at national level in the absence of European-wide instruments
4
EMU
Shortcomings in the architecture of the existing monetary union
European Sovereign Debt Crisis / June 8th 2012
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The euro zone is trapped in a vicious circle intensified by various feedbacks
GR
1
IR
22
SP
IR
3
PT
ITSP
GR
Peripheralcountries
4
EMU
Lower fiscal
revenues
No room for
countercyclic
al policies
Financial
fragmentation
Potential
bank losses
Lower bank
profitabilityCredit crunch
State aid
Public debt purchases
Lack of pan-European policies
Uncertainty
Incr
easin
g
fund
ing
cost
sRisk
of
defa
ults
European Sovereign Debt Crisis / June 8th 2012
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The euro zone is trapped in a vicious circle
GR
1
3
PT
ITSP
GR
Peripheralcountries
IR
22
SP
IR
4
EMU
European Sovereign Debt Crisis / June 8th 2012
Page 5
Actions to try to break this diabolic loop
GR
1
3
PT
ITSP
GR
Peripheralcountries
IR
22
SP
IR
4
EMU
Reinforcement of the SGP (Six-Pack, Fiscal Compact).
European Commission “growth initiative”: long-term structural policies with limited impact in the short term.
The EFSF/ESM solution: inadequate for a monetary union.
Limited progress towards a European resolution and crisis management framework.
INSUFFICIENT
INSUFFICIENT
FURTHER
STEPS
Banking union
FURTHER
STEPSFiscal union
Eurobonds
European Sovereign Debt Crisis / June 8th 2012
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How to break this diabolic loop?Three major requirements for a well-functioning EMU
Framework for individual
countries’ discipline
Enhanced fiscal rulesStrict conditionality in exchange of financial support
SUBSTANTIAL PROGRESS
Is Europe ready to move ahead?
Burden sharing
mechanisms
Transfer of sovereignty to the center
Necessary but not
sufficient
Sharing of banking risks
Debt mutualization
Banking union
Fiscal union
STILL PENDING
European Sovereign Debt Crisis / June 8th 2012
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Is Europe ready to move ahead?
This will depend on the political leadership to convince citizens…
In peripheral countries
…that sacrifices are unavoidable and that they need to adjust economic
behaviours and comply with stringent rules to belong
to/remain in EMU.
In core countries
…that a sustainable EMU requires renouncing
national sovereignty in some fields and burden sharing of certain costs.
European Debt CrisisJosé Luis Escrivá Managing Director – Head of Global Public Finance - Madrid, June 8th 2012
2012 TMA Europe Conference