Download EUCCC Lectue slices July 2010

Europe – the lost
continent?
Howard Davies
Director, LSE
European Union Chamber of
Commerce in China
Beijing, 27 July 2010
The European Union: 500 million
people – 27 countries
EU population, million people, 1986 – 2010
600.0
500.0
400.0
EU27
EU25
300.0
EU15
EU12
200.0
100.0
0.0
1986
Source: Eurostat.
1995
2004
2007
The Euro: A single currency for
Europeans
EU countries using the euro
EU countries not using the euro
Source: http://europa.eu/
How rich is the EU compared to
the US, China and India?
GDP per capita*, current prices (US dollars), 2009
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
*Numbers for China and India are estimates.
Source: IMF World Economic Outlook, April 2010.
US
EU
China
India
The EU economy is close in size
to that of the US
GDP, current prices (Billion US dollars), 2009
EU (16,447 Billion USD)
US (14,256 Billion USD)
Source: IMF World Economic Outlook, April 2010.
Europe’s post-crisis growth
rates likely to be sluggish
Gross domestic product forecast (% change), constant prices, 2007-2015
14
12
10
8
China
France
Germany
6
4
India
United Kingdom
2
United States
0
-2
2007 2008 2009 2010 2011 2012 2013 2014 2015
-4
-6
Source: IMF World Economic Outlook, April 2010.
The World’s Economic Centre of
Gravity is moving eastwards
Projection of the World’s Economic and Geographic Centre of Gravity
Source: Grether JM, Mathys N (2008): Is the World’s Economic Center of Gravity
Already in Asia?
EU is losing its share in global
economic governance
G8
Source: www.g20.org.
G20
Costs of borrowing in the Eurozone
have been growing apart
10-year Greek government-bond spreads over German bunds, percentage
points, 2001 - 2010
Source: The Economist, 9 April 2010.
Unit labour costs in Greece and Spain have
been growing more rapidly than in Germany
or France
Quarterly unit labour cost*, index (2005 = 100.0), 2006 Q3 – 2010 Q1
120
115
110
France
Germany
Greece
Spain
105
100
95
90
85
2005
Q42006
Q22007
Q42007
Q22008
Q42008
Q22009
Q42009
* Unit labour costs measure the average cost of labour per unit of output and are calculated as the ratio of total labour
costs to real output, seasonally adjusted.
Source: OECD Data, 22 July 2010.
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 by far the most
vulnerable European country
Estimates of cumulative budget deficit (%), 2009 – 2011, and debt to GDP
ratio (%), 2011
Source: IMF, Morgan Stanley Research Estimates.
Steps towards a resolution of
the crisis
• Fiscal consolidation
• European Central Bank buys sovereign debt
• European Financial Stability Facility
• Bank Stress Tests
• New Regulatory System
Source: De Larosière Report, February 2009.
But is this enough?
• German fiscal retrenchment makes
life harder for the PIGS
• Still no ‘economic government’
• No fiscal transfer mechanism
Europe – the lost
continent?
Howard Davies
Director, LSE
European Union Chamber of
Commerce in China
Beijing, 27 July 2010