Download Six Issues

Economic and Monetary
Union
- Unfinished Business
Howard Davies
Director, LSE
Convoco
HVB Forum, Munich
10 May 2010
Source: The Economist, 29 April 2010.
Six Issues
1. Fiscal Discipline
The true Greek fiscal position
was worse than reported
Greece: notified vs. actual budget balances, % of GDP, 2000 – 2008
Source: Bruegel Policy Brief, March 2010.
Solvency gaps are massive
Fiscal tightening (% of GDP) needed between 2010 and 2020 to achieve 60%
of GDP public debt ratio by 2030
Note: Primary balance (assumed to improve gradually during 2011-20 and then maintained constant until 2030) improvement
needed to stabilise debt at the end-2011 level. Japan’s target public debt ratio is 80% of GDP.
Source: Citigroup Global Markets, Global Economics View, 26 April 2010.
Six Issues
1. Fiscal Discipline
2. Competitiveness
There has been a remarkable
divergence in competitiveness
Real exchange rate* and relative export performance, cumulative
change between 1999 and 2008
*Real exchange rates are based on unit labour costs.
Source: Bruegel Policy Brief, March 2010.
Greece is the frontrunner as the most
vulnerable country of the euro area
Vulnerability index
Source: CEPS Policy Brief, No. 202, February 2010.
Six Issues
1. Fiscal Discipline
2. Competitiveness
3. European Monetary Fund
European Monetary Fund (Buiter)
-
-
-
Established under Enhanced Cooperation provisions of the Lisbon
Treaty
Subscriptions in proportion to Euro
Area countries’ equity stake in ECB
€ 2 trillion subscription, of which € 200
billion paid in
Board: Euro Area member states, EC,
ECB
Germany would finance more
than a quarter of the EMF
Relative shares in the ECB’s capital in euro area, % of EA share
Source: Citigroup Global Markets, Global Economics View, 26 April 2010.
Six Issues
1.
2.
3.
4.
Fiscal Discipline
Competitiveness
European Monetary Fund
Financial Regulation
The de Larosière framework
European Systemic Risk Council (ESRC)
(Chaired by President ECB)
Macroprudential
supervision
Members of
ECB/ESCB
General Council
(with alternates
where necessary)
+
Chairs of
EBA, EIA
& ESA
Information on micro-prudential
developments
+
European
Commission
Early risk warning
European System of Financial Supervision (ESFS)
Micro-prudential
supervision
European
Banking
Authority
(EBA)
European
Insurance
Authority
(EIA)
European
Securities
Authority
(ESA)
National Banking
Supervisors
National Insurance
Supervisors
National Securities
Supervisors
Source: De Larosière Report, February 2009.
Six Issues
1.
2.
3.
4.
5.
Fiscal Discipline
Competitiveness
European Monetary Fund
Financial Regulation
Fiscal Transfers
Six Issues
1.
2.
3.
4.
5.
6.
Fiscal Discipline
Competitiveness
European Monetary Fund
Financial Regulation
Fiscal Transfers
Euro System Reform
The ECB is the most independent,
and least accountable central bank
Accountability vs. Independence, adapted from Sousa (2002)
Source: CEPR Discussion Paper No. 5470, January 2006
GDP and voting weights are very
different
Distribution of voting rights and economic size in EMU
Current situation
Hypothetical EMU 24
Note: Relative size based on GDP.
Source: H Berger (2006), Optimal central bank design: Benchmarks for the ECB.
Central/ Regional voting in the
Federal Reserve and the ECB
Ratio of regional to central votes
3
2.5 – 1.0
2.5
2
1.5
1.1 – 1.0
1
0.7 – 1.0
0.5
0
EMU 15
Fed
Bundesbank
Source: Heinemann and Huefner (2004). Is the view from the Eurotower purely
European?
Economic and Monetary
Union
- Unfinished Business
Howard Davies
Director, LSE
Convoco
HVB Forum, Munich
10 May 2010