Download Macroeconomic Policy and the Euro Area after the Crisis

Macroeconomic Policy and
the Euro Area after the
Crisis
George Alogoskoufis
The Financial Crisis and
the Global Recession
 Crisis unveiled serious weaknesses in the
global financial and economic system
 Need for coordinated policy response
 Open world trading and financial system
must be preserved
 New global economic governance (G-20)
The Crisis and the Euro Area
 Euro area has responded in coordinated and
relatively effective manner
 Severe recession in 2009
 Unemployment set to continue to rise
 Inflation fell
 Severe worsening of public finances
Figure 1
Growth Before and After the Crisis
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2006
-1.00%
-2.00%
-3.00%
-4.00%
-5.00%
-6.00%
2007
2008
2009
2010
2011
EA
US
UK
Figure 2
Unemployment Before and After the Crisis
12.00%
11.00%
10.00%
9.00%
EA
US
UK
8.00%
7.00%
6.00%
5.00%
4.00%
2006
2007
2008
2009
2010
2011
Figure 3
Inflation Before and After the Crisis
3.50%
3.00%
2.50%
2.00%
EA
US
UK
1.50%
1.00%
0.50%
0.00%
2006
-0.50%
2007
2008
2009
2010
2011
Figure 4
General Government Balance Before and After the Crisis
0.00%
2006
2007
2008
2009
2010
2011
-2.00%
% of GDP
-4.00%
-6.00%
-8.00%
-10.00%
-12.00%
-14.00%
EA
US
UK
Figure 5
Government Debt Before and After the Crisis
90.00%
85.00%
80.00%
75.00%
% of GDP
70.00%
EA
US
UK
65.00%
60.00%
55.00%
50.00%
45.00%
40.00%
2006
2007
2008
2009
2010
2011
The Stability and Growth Pact
 Fiscal deficits below 3% of GDP at all times
 Fiscal balance in the medium term
 Public debt tending towards 60% of GDP or
lower
 Rules for corrective action
Macroeconomic Policy for a
Sustainable Recovery
 Limited role for fiscal policy to play an active role
in sustaining the recovery.
 Core economies must adopt a cautious approach to
fiscal consolidation and take time so as not to
stifle the recovery
 Peripheral economies must proceed with fiscal
consolidation immediately to gain credibility
 The ECB must continue providing adequate
liquidity
Microeconomic and Social Policy
 Important for the medium run to persist
with the Lisbon agenda
 The European social model should function
within the available budgetary limits