Download Eurobonds - De Nederlandsche Bank

Comments on
Amtenbrink & De Haan
DNB workshop on Macroeconomic Imbalances
in the Euro Area
13/14 October 2011
Jeroen Hessel
Senior Economist
De Nederlandsche Bank
Outline paper eurobonds:
legal & economic view
• Failure of current governance: enforceability
• Eurobonds to i) increase budgetary discipline
and ii) avoid market speculation
• Feasibility under current European and
national (German) law
Main comments:
balance law & economics
• Enforceability is very important, but not the
only problem. That is a simplification.
• If enforeability is the only problem, why farreaching proposal to introduce eurobonds?
Enforceability (i): starting positions
• Rules were insufficiently enforced for several
peripheral countries, but not for all of them
Table: budgetary starting position in 2007
Actual Deficit
Structural deficit
Debt
GR
PT
FRA
ITA
AT EMU
B
IRL
NL
GER
SP
FIN
-6,4
-7,1
-3,1
-2,6
-2,7
-2,6
-1,5
-1,3
-0,9
-1,4
-0,7
-0,8
-0,3
-0,4
0,1
0
0,2
0,1
0,3
-0,1
1,9
2,1
5,2
4,8
105,4
68,3
63,9 103,6
60,7
66,2
84,2
25
45,3
64,9
36,1
35,2
Enforceability (ii): deficit increase
Increase in the estimated deficit for 2009 since the start of the crisis
16
14
12
10
8
6
4
2
0
GER
ITA
AT
FRA
EMU
increase in structural deficit 2009
B
FIN
NL
PT
increase in cyclical component 2009
Source: European Commission Spring Forecast 2008 and Spring Forecast 2011
SP
IRL
deficit 2009
GRE
Enforceability (iii): debt increase
Increase government debt since financial crisis (2007-2011)
90
180
75
150
60
120
45
90
30
60
15
30
0
0
B
AT
FIN
ITA
DLD
NL
FR
increase government debt 2007-2011 (% gdp, l-axis)
Source: European Commission Spring Forecast 2011
EMU
SP
PT
GR
IRL
government debt 2011 (% of gdp, r-axis)
Enforceability (iv): conclusion
• Enforceability should definitely increase
• But financial crisis was a very big shock
• Role of “forgotten” macro-imbalances
• Rules cannot foresee all future problems
• Budgetary problems never fully excluded
Eurobonds (i): what reason?
• If enforceability is key, why eurobonds?
• Why should we prevent market speculation?
 Asian crisis, Latin American debt crisis
• Key reason: is a monetary union different?
Eurobonds (ii): EMU seems special
Budgetary situation EMU-periphery in international perspective
280
14
240
12
200
10
160
8
120
6
80
4
40
2
0
0
JAP
GRI
ITA
IRL
government debt 2011
VS
BEL
POR
budget deficit 2011
FRA
CAN
VK
DLD
government debt 2016
SP
Eurobonds (iii): why is EMU special?
• Political effectiveness?
• Macro-imbalances and competitiveness
• Larger risk of contagion
– Deeper financial integration
– Many countries in a similar position
• De Grauwe (2011) inherent instability in EMU:
– No exchange rate, monetary policy, lender of last resort
Eurobonds (iv): conclusion
Main reason eurobonds:
Budgetary and macro-rules never prevent all
future budgetary problems
EMU inherently unstable once this leads to
doubt about debt-sustainability