Japan-China-Korea (A3) Conference
Monetary and Financial Cooperation in the Region
Handout
Long Guoqiang
Development Research Center of the State Council
May 24, 2012
RIETI, Tokyo
Research Institute of Economy, Trade and Industry (RIETI)
http://www.rieti.go.jp/en/
Reasons and impacts of Euro
crisis and implication to Asia
Long Guoqiang
DRC
May 24, 2012
Contents
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
What’s the reasons of Euro crisis?
What’s the impacts of Euro crisis?
Implication to Asia financial cooperation
General Government Gross Debt，
%/GDP
200.0
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
2009
2010
2011
希腊
意大利
葡萄牙
法国
奥地利
马耳他
斯洛文尼亚
斯洛伐克
2012
西班牙
What is the reason of the
crisis?


People think the high ratio of debt is
the reason of the crisis.
If it is true, why Japan and US have not
government debt crisis, while their debt
ratio are 230% and 100%, respectively?
There must be some other
reason



Japan’s government debt is mainly
internal debt
US can finance its debt by means of
issuing USD, as USD is international
currency
Euro is also international currency, why
Euro countries, such as Greece can not
finance its debt as US does?
Balance of current
account(1999-2012)
300
250
200
150
100
50
0
-50
1
2
3
4
5
6
7
8
9
10
11
12
-100
-150
-200
billion USD
Germany Current account balance U.S. dollars Billions
Greece Current account balance U.S. dollars Billions
Italy Current account balance U.S. dollars Billions
Portugal Current account balance U.S. dollars Billions
Spain Current account balance U.S. dollars Billions
13
14
15
If there were not Euro


Germany currency, Mark, should
appreciate a lot
Other currencies of deficit economy
should depreciate a lot
If in a single country



How to deal with the regional disparity?
There are two main way to compensate
the backward region: fiscal transfer by
the central government and migration
of labor
In Euro zone



Weak economy such as Greece can not
depreciate its currency, no fiscal
transfer from outside and can not
mitigate unemployment by labor
migration within Euro zone
Nor can it finance its debt by issuing
more currency
The only result is crisis!
Impacts of Debt crisis





Shock to stability of financial market, if
Greece retreat from Euro zone, the shock will
be even bigger
Weaken the abilities of private financial
institutes
Tighten of government fiscal policy
There is not a real solution of the debt crisis,
the impact may be last in long time
Slow down the economy, as well as trade and
investment
Impacts to China




Risks of investment of foreign reserves
Loses of private investment in EU
financial market, for example, 20 billion
Euro lose of Ping An Insurance
Slow down of export to EU market, the
biggest market of China’s export, -2%
in the first 4 months
Opportunities for M&A
Implication to Asia Financial
cooperation







Asian Dollar may not be the right choice
Regional Financial cooperation should follow the
requirements of real economy, development of
economy, trade and investment
Enforce regional development financial cooperation,
ADB
Development of currency swap among regional
economies
Trade settlement using each country’s currency
Open financial and capital market among region
Feasibility study of establishing regional monetary
fund

Thanks!