Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Europe and the Crisis Rainer Kattel Tallinn University of Technology Estonia
Document related concepts
Currency War of 2009–11 wikipedia , lookup
Balance of trade wikipedia , lookup
Currency war wikipedia , lookup
Modern Monetary Theory wikipedia , lookup
Foreign-exchange reserves wikipedia , lookup
Global financial system wikipedia , lookup
Balance of payments wikipedia , lookup
Exchange rate wikipedia , lookup
Transcript
Europe and the Crisis Rainer Kattel Tallinn University of Technology Estonia Real effective exchange rate, 1999=100 180 170 160 150 Czech Republic 140 Germany 130 Estonia Hungary 120 Poland 110 Slovenia 100 Slovakia 90 80 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 CEE the new epicenter of the crisis How come? • Foreign savings led growth strategy during the last 2 decades – FDI (1/3 of emerging market FDI in 2000s), key destination finance and real estate (up to 2/3 at peak) – Massive cross-border lending by newly foreign owned (up to 97%) financial sector, much of it in foreign currency (up to 80%), much of into real estate – Exports (up to 80% of GDP) through European production outsourcing • Aided by generally neoliberal macro-economic policies (and by currency pegs in the Baltics) • Highly pro-cyclical environment Such growth strategy brought … • Transformation of domestic banking – Forex lending to households, mortgages – Severing linkages with production sector • Lagging productivity due to specialization into low value added production activities – Low domestic linkages – Weak knowledge production • Loss of competitiveness through rapid currency appreciations EE as variations of Ponzi schemes • On the eve of the crisis, foreign financing gap (current account balance + FDI) was very high, esp in the Baltics up to 10% of GDP • Slowing cross-border flows, fdi and exports in 2008, 2009 and beyond, turned in particular the Baltics into Ponzi schemes with collapsing domestic demand • Foreign ownership of banks seems to have slowed down financial flow reversals plus banks benefit from their domestic bail-outs/stimulus conclusions Germany exports its unemployment to the rest of the EU EU periphery exports its unbalances to the of the EU Both result in strong deflationary and recessional pressures Structural change and industrial upgrading key, yet currently push for more neoliberal reforms If euro continues, the EU needs to become a federal state
