Download TIGHTENING LABOUR MARKETS

Wiener Institut für
Internationale
Wirtschaftsvergleiche
The Vienna Institute for
International Economic
Studies
www.wiiw.ac.at
Challenges of Real Convergence
Conference on: Ten Years of the Euro – Inspirations for
the Czech Republic
Prague, November 25, 2008
Michael Landesmann
[email protected]
2
Topics
 Real convergence outside and within the EMU: some



general remarks
Real convergence of the NMS: different patterns of
‚fixers‘ and ‚flexers‘
What makes NMS different from Spain and Portugal?
The issue of monetary instability and financial
architecture – lessons from the current crisis
wiiw
3
Topics
 Real convergence outside and within the EMU: some
general remarks:
- advantages outside: exchange rates may remove misalignments in case of shocks; otherwise all burdens fall on wage
and (more generally) labour market flexibility
- advantages inside: mainly escape from currency mismatch
problems in case of contagion; ‚real interest rate effect‘ can lead
to falling savings rate, asset bubbles.
wiiw
0
Source: Eurostat.
Bulgaria
Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Romania
Slovak Republic
Slovenia
Greece
Italy
Portugal
Spain
Austria
Belgium
Denmark
Finland
France
Germany
Ireland
Luxembourg
Netherlands
Sweden
United Kingdom
1993-2000
EU-27
EU-15
Bulgaria
Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Romania
Slovak Republic
Slovenia
Greece
Italy
Portugal
Spain
Austria
Belgium
Denmark
Finland
France
Germany
Ireland
Luxembourg
Netherlands
Sweden
United Kingdom
EU-27
EU-15
4
GDP per head, real growth
annual averages 1993-2000 and 2001-2007, in percent
EU-27 countries
9
2001-2007
8
7
6
5
4
3
2
1
wiiw
5
Topics
 Real convergence of the NMS: different patterns of
‚fixers‘ and ‚flexers‘
- fixers: lower risk premium on foreign borrowing; higher current
account deficits, more private sector debt, more fear of currency
mismatch in case of contagion; more serious testing of exchange rate
regime in current crisis; more liquidity crunch in period of crisis?
- flexers: higher inflation rates, lower current account deficits,
exchange rate reacted to financial market crisis; formerly appreciation
pressures
wiiw
6
GDP growth by country
GDP growth rates in %
2000
2001
2002
2003
2004
2005
2006
2007
SK
SI
12
10
8
6
4
2
0
BG
CZ
Source: wiiw annual database
EE
HU
LV
LT
PL
RO
wiiw
7
Current account in % of GDP, 1995-2007
1995
2002
5
1996
2003
1997
2004
1998
2005
1999
2006
2000
2007
2001
0
-5
-10
Czech Republic
Hungary
Poland
1995
2002
5
0
-5
-10
-15
-20
-25
Estonia
1996
2003
Latvia
Slovak Republic
1997
2004
1998
2005
1999
2006
Slovenia
2000
2007
Lithuania
2001
wiiw
8
Consumer prices, 2000-2007
(Month in the previous year = 100)
CZ
HU
PL
SK
SI
BG
RO
60
50
40
30
20
10
0
-10
Jän.00Jul.00Jän.01Jul.01Jän.02Jul.02Jän.03Jul.03Jän.04Jul.04Jän.05Jul.05Jän.06Jul.06Jän.07Jul.07
Source: wiiw-Database
wiiw
9
Nominal exchange rates, 1998-2007
EUR per NCU, 1998=100
CZ
HU
PL
SK
SI
BG
2003
2004
2005
2006
RO
140
120
100
80
60
40
20
0
1998
1999
2000
2001
Ascending line indicates appreciation.
Source: wiiw database incorporating national statistics.
2002
2007
wiiw
10
Real exchange rates, 1996-2007
EUR per NCU (PPI deflated NCU + EUR), 1996=100
CZ
HU
PL
SK
SI
BG
RO
240
220
200
180
160
140
120
100
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Note: Values over 100 indicate appreciation relative to 1996=100.
Source: wiiw database incorporating national statistics.
wiiw
11
Average gross monthly wages, total,
EUR, 1995=100
CZ
HU
PL
SK
SI
BG
RO
AT
400
350
300
250
200
150
100
50
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: wiiw database incorporating national statistics.
wiiw
12
Unit labour costs
(Austria=100)
CZ
HU
PL
SK
SI
BG
RO
70
60
50
40
30
20
10
1995
1996
1997
Source: wiiw-Database
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
wiiw
14
General government deficit, 1998-2006
in % of GDP
HU
CZ
PL
SK
SI
0
-2
-4
-6
-8
-10
-12
-14
1998
Source: Eurostat.
1999
2000
2001
2002
2003
2004
2005
2006
wiiw
16
Topics
 A tale of two countries (Spain, Portugal)
 What makes NMS different from Spain and Portugal?
- NMS: longer experimentation of monetary and exchange rate
alignment with Eur-zone; much tighter financial market
integration; some economies with sophisticated and robust export
structures (more like Spain or even Ireland); problems with fiscal
policy – political business cycles
- Lessons: beware of real interest effect, household savings,
asset price bubbles; real exchange rate and current accounts
(hence ‚competitiveness‘) issues do not disappear
wiiw
19
Topics
 What do we learn from the current crisis? The issue of
monetary instability and financial architecture
- Differences in the vulnerability across economies: fixers vs.
flexers, those with high/low foreign debt/private debt; fiscal
recklessness and political business cycles
- Contagion transmission through foreign banks; not sufficient
condition for stability in credit markets; strict regulation important
- On balance: quick transition to full EMU membership desirable
wiiw