EIN seminar on 'Clues for a more competitive EU both internally and externally; a true internal...
-
Upload
dana-sarah-phelps -
Category
Documents
-
view
215 -
download
0
Transcript of EIN seminar on 'Clues for a more competitive EU both internally and externally; a true internal...
EIN seminar on
'Clues for a more competitive EU both internally and externally; a true
internal market source of mobility and employment‘
Carlo ALTOMONTE
(Bocconi U. & Bruegel)
Brussels, 19June 2012
The European crisis visualized
0
2
4
6
8
10
12
14
16
18
20
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
EL
IE
IT
ES
FR
DE
EMU start (1 January 1999)
Start of Greek crisis (Feb - May 2010)
Lehman Brothers
(Sept. 2008)
Greece in EMU (1 January 2001)
0
25
50
75
100
125
150
175
200
225
250
FR DE EL IR IT ES UK US JP
2000 2011
+81%+34%+53%
+10%
+61%
+202%
+103%
+47%
+8%
A fiscal crisis? Not only that …
What is this crisis about ?
The bank-sovereign negative feedback loop
Rescuing banks increases deficits, worsening the sustainability of debt.
• Banks already have sovereign assets in their portfolio: due to the worsening of
their RWA ratios, banks find it difficult to access the inter-banking market
• The latter generates bank deleveraging leading to less credit to the economy and
lower growth
• Lower growth worsens the sustainability of debt…
1
3
2
Avoid the “fairy tales” of the crisis• Solving the negative bank-sovereign fiscal loop requires also changing the public
narrative of the crisis, overcoming two general misconceptions:
• The fiscal fairy tale: “the crisis is due to an unsustainable fiscal stance of
Southern European countries; once deficit spending is curbed and profligacy is
eliminated, the crisis is over” Not true: this is a balance of payments crisis, not a fiscal crisis; an austerity
– only solution actually risks of worsening the crisis via the worsening of
the bank-sovereign negative feedback loop
• The inflation fairy tale: “the ECB cannot act as lender of last resort for the
Euro (funding both banks and Governments) as otherwise it will generate
inflation” Not true: the current value of the money multiplier is at its historical lows
=> there is time to reabsorb liquidity before inflation kicks in. The real
reason the ECB cannot act is because there is no federal debt (Eurobond) to
purchase => intervention = fiscal redistribution, banned by current
Constitutional rules
What to do: eliminate the negative feedback loop in EU
Common bank resolution frameworkPan-European deposit guarantee scheme
EU-level supervision
Fiscal compact & ‘6+2 pack’Euro-bond scheme (various
proposals)
Revamp of Single MarketProject-bond & infrastructureRole of EIB and EU Budget
The above is necessarily a medium-term roadmap (due to the needed institutional changes,
including the required transfer of sovereignty from national Governments to EU Institutions).
In the short term the ECB should keep on acting as a provider of liquidity (SMP and LTRO),
until European banks and peripheral countries regain access to international capital markets
Not much time left
How an inter-banking market should
work: bank lend among themselves
while the ECB act as a marginal lender,
regulating the system. Total size of
inter-banking market: €4.000Bln / year
How it is working: ECB is the hub.
Total size of outstanding ECB liquidity after
LTRO is around €2700Bln (30% of Euro area
GDP) with a paid-in capital of €80Bln. Given
the yearly needs of liquidity, there is not much
additional room of manoeuvre left...
Northern EU
Southern EU
LTRO
Where the debate is: kicking again the can down the
road ?
Where the debate should be: this is the last exit for everyone…
The long run for the EU: overcome the impossible trinity
In a monetary union characterized by competitiveness differentials, liquidity-constrained current account imbalances are deadly within a system where: 1) there is no monetary financing by the ECB; 2) there are no fiscal transfers across States (no co-responsibility of debt), and in which 3) the bank-sovereign loop is active.
In the short to medium-run the EU has to decide which corner of the triangle it wants to cut first, just to survive.
In the long run it might decide to cut all corners and become the economic and political power it deserves to be
=> Political Union
La situazione italiana: il rischio default a novembre
Debito / PIL in Italia 2011 - 2020 con differenti scenari
100
105
110
115
120
125
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Recession Baseline Reforms
Recession: real growth -1.5% & -0.5% in 2012 and 2013 with 2% and 1.5% inflation, then nominal growth at 3%; average cost of debt at 4.9% in 2012 & 2013 (BTP 10y > 7%); 4.5% from 2014 onwards
Reforms: real growth -1.5% & -0.5% in 2012 and 2013 with 2% and 1.5% inflation, 1% in 2014 and 1.5% from 2015 onwards, with 2% inflation; average cost of debt at 4.7% in 2012, 4.5% in 2013, 4.2% in 2014 and 3.5% from 2015 onwards; primary balance at 5% already from 2012
Baseline 2011 2012 2013 2014 2015 →Real Growth 0.8 0.6 0.8 1.1 1 →Inflation (prod. prices) 1.4 1.9 1.8 1.8 2 →Nominal Growth 2.2 2.5 2.6 2.9 3 →Average cost of debt 4.2 4.2 4.2 4.2 4.2 →Primary balance surplus (%GDP) 0.9 3.7 5.4 5.7 3 →
La manovra di stabilizzazione del debito pubblico