The Eurozone context Is there a proper identification of the crisis’ causes? Lucian Croitoru
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The Eurozone context
Is there a proper identification of the crisis’ causes?
Lucian Croitoru
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IIP(% of GDP)
Public debt (% of GDP)
2010 2010
Euro area -13.3 85.6 -
Bulgaria -97.7 16.3 4.3
Czech Republic -49.0 37.6 3.8
Ireland -90.9 94.9 9.0
Greece -92.5 144.9 35.7
Spain -89.5 61.0 4.5
Italy -23.9 118.4 6.2
Hungary -112.5 81.3 9.0
Poland -64.0 54.9 4.8
Portugal -107.4 93.3 16.0
Romania -65.3 31.0 6.6
US -17.0 95.2 1.5
LT Yield(latest, bonds maturing
in 2018)
Source: Eurostat, US Department of Commerce, WEO Database, Bloomberg
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Exposure of US-owned banks on EA and PIIGS
23
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Ma
r.0
5
Jun
.05
Se
p.0
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c.0
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Ma
r.0
6
Jun
.06
Se
p.0
6
De
c.0
6
Ma
r.0
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Jun
.07
Se
p.0
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De
c.0
7
Ma
r.0
8
Jun
.08
Se
p.0
8
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c.0
8
Ma
r.0
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Jun
.09
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p.0
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De
c.0
9
Ma
r.1
0
Jun
.10
Se
p.1
0
De
c.1
0
Ma
r.1
1
Jun
.11
Se
p.1
1
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
share of claims on the euro area in total claims of US owned banks
share of claims on PIIGS in total claims of US banks (rhs)
share in total claims (%) share in total claims (%)
Source: BIS Database
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What is the nature of the crisis?
• The fiscal malfeasance?
• The balance of payments crisis?
• The decisions should be different, depending the nature of the crisis
• The European leaders think of a fiscal nature of the crisis
• Based on data, one may think of a balance of payments crisis
• If the competitiveness is the real problem, than the solutions are of two folds:• An external adjustment. Specifically, shifts in competitiveness• Looser macropolicies to alow higher inflation and higher credit
growth in surplus countries
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Budget deficits and public debts
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Red for 2009-2010
Blue for 1997-2007
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Greed for 1990-1998 (average, % of GDP)
Blue for 1997-2007 (average, % of GDP)
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Current account deficits
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Red for 2009-2010
Blue for 1997-2007
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Green for 1990-1998 (average, % of GDP)
Blue for 1999-2007 (average, % of GDP)
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Blue for 1997-2007
Red for 2009-1010
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Unit labor costs
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Blue for LP
Red for NCE
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Blue for LP
Red for NCE
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Blue for LP
Red for NCE
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Conclusions from comparing fiscal deficits, public debt and current account deficits
• Cash deficits select well Greece. But fail to select any other country if the 1999-2007 average fiscal deficts is considered
• Public debt is also a imprecise measure: it rightly picks up Greece, Italy, Belgium and Portugal. But fails to pick up Estonia, Ireland and Spain, which performed better than Germany before the crisis
• The current account deficits picks up Greece, Portugal, Italy, Ireland, Spain.
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Key decisions include
• No compelling for private bondholders to take losses on euro-zone bail-outs. But voluntary restructuring remains
• Some degree of automaticity of sanctions on countries that fail to stay within the limits on budget deficits
• Requirements for balanced budget into domestic legislations
• Introduction of the ESM in June 2012
• Monthly meetings of European leaders to oversee policy co-ordination