Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
The euro crisis: an update Euro Challenge 2013 Delegation of the European Union to the United States www.euro-challenge.org What this presentation will cover • Background: origins of the crisis • Update on the economic situation in the euro area • “Rebalancing” the euro area economy • Europe’s policy responses: “EMU 2.0” The never-ending crisis? ? FINANCIAL STRESSES and ECONOMY SLOWING ? FINANCIAL CRISIS 2008 SOVEREIGN DEBT CRISIS ECONOMIC CRISIS 2009 SURGE IN GOVERNMENT DEBT POLICY RESPONSE: STIMULUS Government (sovereign) debt levels ballooned Debt to GDP in the Euro Area Countries and the US ( a s % o f GD P ) 200 2007 18 0 2012 (P r oj ect ed) 16 0 14 0 12 0 10 0 80 60 40 20 0 AT BE CY EE FI FR DE Source: European Commission, Spring 2012 EL IE IT LU MT NL PT SK SI ES US Mild recession in the euro area • The euro area economy is projected to experience a mild recession in 2012 and early 2013. Gradual recovery expected starting in 2nd half of 2013 Euro Area & US GDP with Forecasts 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% Euro area United States -3.0% -4.0% -5.0% 06 20 07 20 08 20 09 20 10 20 Source: European Economic Forecast - Autumn 2012 11 20 12 20 13 20 14 20 • Several years of negative growth in countries hardest hit by the crisis (Greece, Portugal); but growth has slowed even in stronger countries like Germany and France • A slowing global economy is not helping Europe overcome its crisis faster (and vice-versa). Unemployment remains unacceptably high • The unemployment rate is rising and currently stands at a high of 11.6% in the euro area Euro Area & US Unemployment with Forecasts 14.0% Euro area United States 12.0% • There are huge differences between countries’ unemployment rates, which range from a low of 4.4% in Austria to a high of 25.8% in Spain 10.0% 8.0% 6.0% 4.0% 2.0% Source: European Economic Forecast - Autumn 2012 20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 0.0% • Meanwhile, inflation (2.5%) is above the ECB’s preferred “close to but below 2%”, but is expected to decline further due to slower growth and thus is not a threat Financial market tensions have eased… Ten-year government-bond interest rates, selected euro-area Member States % 16 DE IT ES PT IE FR • These actions have brought down interest rates on government bonds of troubled euro area countries, further reducing the risk of default (not being able to pay back their debts) 12 8 4 0 09 10 11 • Euro area countries have set up a permanent assistance fund and the European Central Bank has said it will buy bonds if necessary (like the US Fed is doing). 12 • European stock markets have also stabilized. …but banks are not lending as they should • An economy needs a functioning banking sector to support growth, through bank lending to consumers and businesses • Banks have tightened their “credit standards” and are lending out less money. Less money in the economy means less economic growth. • There was too much (private sector) borrowing before the crisis hit, but not enough now to support growth. A process of “rebalancing” has started “Periphery” Countries that lived “beyond their means” need to reduce spending and raise revenues Countries that lost competitiveness need to regain it, for instance by reducing costs so that they can sell more abroad (i.e., increase their exports) Some euro area countries fall between these two broad categories! “Core” Countries in better economic shape must sustain economic growth. But they also need to keep their budgets under control S because of long-term o pensions costs (e.g., of and health care u in aging societies) In the short run, “core” countries have room to spend more money at home and buy more goods from abroad (import more). Public finances set to improve further • Governments are gradually bringing their spending in line with revenues (working to balance budgets) General government debt, euro area 100 % of GDP • Government debt is on a path to stabilize and eventually decline in the euro area 95 90 85 80 75 70 65 60 05 06 07 08 09 10 11 12 13 14 • Improvement in public finances will help restore investor and public confidence; however, it must be done in a way that does not choke off growth Note: Debt is measured as a share of economic output (debt/GDP) It is VERY difficult to reduce the numerator (debt) if the denominator (GDP) is shrinking! Europe’s response to the crisis Strengthening the “E” in EMU BANKS PROGRAMS Strengthen the banking system, including stronger supervision at the EU level Financial assistance for countries in difficulty (but with conditions attached) RULES FIREWALL Stronger, more effective fiscal rules and greater coordination of economic policies A permanent mechanism (ESM) to stem the risk of contagion to other countries GROWTH Boost growth through “structural reforms” and completing the single market More “union”, now and later on… Political Union Growth Union Fiscal Union Banking Union The European Union is gradually solidifying The case for the euro Strong political commitment of leaders to defend the euro Break-up or shrinking of the euro area would involve huge costs, make it harder for countries to borrow. Governance of euro area is being strengthened, flaws fixed Balanced emphasis on growth and fiscal adjustment More sustainable public finances and economic reforms will help countries “The euro is at the core of our European project.” Statement by Heads of State or Government of the euro area and EU institutions, Oct. 26th, 2011 Good luck in the Euro Challenge 2013 ! “The Euro Challenge High School Competition” twitter.com/eurochallenge delicious social bookmarking delicious.com/eurochallenge