European Monetary Union (A2 Macro)
Syllabus: Understand benefits and costs of monetary unions
Effects on the rate of inflation; unemployment; the Balance of Payments and economic growth. Students could
focus on the eurozone. Specific knowledge of other monetary unions (single currencies) is not required.
Competitiveness within single currency area. Aspects of the fiscal crisis in the Euro Area
Background: Macroeconomic indicators for the Euro Area
Indicator
2008
2009 2010 2011 2012
This data covers all seventeen nations inside the Euro Area
Individual macro indicators for each country will be different
Real GDP (% change)
0.3
-4.3
1.9
1.5
-0.4
Consumer spending (% change)
0.4
-0.9
0.9
0.1
-1.0
-1.6 -12.7
-0.3
1.6
-3.6
Capital investment (% change)
Output gap (percentage of potential GDP)
1.9
-3.6
-2.7
-2.2
-3.7
Unemployment rate (percentage of labour force)
7.4
9.4
9.9
10.0
11.1
-2.1
-6.3
-6.2
-4.1
-3.3
Short-term interest rate (per cent per annum)
4.6
1.2
0.8
1.4
0.6
Consumer price inflation (per cent)
3.3
0.3
1.6
2.7
2.4
Fiscal Balance (percentage of GDP)
Source: OECD World Economic Outlook, accessed December 2012
Notes:
UK and the Euro – The Current Situation
Sterling-Euro Exchange Rate
Value of one Euro, daily closing exchange rate and index of production (exc construction)
1.00
1.00
Pence per Euro1
Sterling-Euro Exchange Rate (pence per Euro)
0.95
0.95
0.90
0.90
0.85
0.85
0.80
0.80
0.75
0.75
0.70
0.70
0.65
0.65
0.60
0.60
02
03
04
05
06
07
08
09
10
11
12
13
Source: Reuters EcoWin
Notes
Selected Real GDP Growth Rates
Economic Growth for Selected EU Countries
6.0
6.0
4.0
4.0
2.0
2.0
0.0
0.0
-2.0
-2.0
-4.0
-4.0
-6.0
-6.0
-8.0
-8.0
Annual % change in real GDP
8.0
07
08
09
Germany
United Kingdom
10
Ireland
Greece
11
12
13
Annual % change in real GDP
Annual % change in real GDP at constant prices
8.0
14
Spain
Euro Zone
Source: OECD World Economic Outlook
Unemployment Rates
Unemployment Rates for some OECD Countries
Percent of the labour force
Unemployment rate - per cent of the labour force (annual)
28.0
26.0
24.0
22.0
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
28.0
26.0
24.0
22.0
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
05
06
Greece
Ireland
Italy
07
08
09
10
Spain
Germany
United Kingdom
11
12
13
14
South Korea
United States
Source: OECD World Economic Outlook
Output Gaps – a measure of spare capacity
Measuring the Output Gap: From Strong Growth to Recession
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
-20
-20
05
06
Greece
07
08
09
United Kingdom
10
Germany
11
Spain
12
13
Percent of potential GDP
Percent of potential GDP
Output gap of the total economy, Difference between actual and potential GDP
14
Ireland
Source: Reuters EcoWin
Fiscal Balances for Selected EU Countries
Fiscal Balances for Selected EU Countries
5
0
0
-5
-5
-10
-10
-15
-15
-20
-20
-25
-25
-30
-30
-35
Percent of GDP
Percent of GDP
Government net lending, % of GDP
5
-35
04
05
Greece
Germany
06
07
08
Ireland
Spain
09
10
11
12
13
14
United Kingdom
Italy
Source: OECD World Economic Outlook
Gross Government Debt for Selected Countries
Gross Government Debt for Selected EU Countries
225
225
200
200
175
175
150
150
125
125
100
100
75
75
50
50
25
25
0
Percent of GDP
Percent of GDP
Gross government debt as a share of national income (GDP)
0
02
03
04
05
06
07
08
Italy
United Kingdom
Spain
09
10
11
12
13
14
Greece
Ireland
Source: Euro Stat
Bond Yields
Yields on 10 Year Government Bonds
Percent per Annum
monthly average 10 year bond yield, per cent, source: IMF
30
30
25
25
20
20
15
15
10
10
5
5
0
Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep
08
09
10
11
12
0
Greece
Ireland
UK
Spain
Italy
Source: IMF
Relative unit labour costs matter inside a single currency
Diverging Competitiveness - Unit Labour Costs
Index of unit labour costs, 2005=100, seasonally adjusted
120
115
115
110
110
105
105
100
100
95
95
90
90
Index
120
85
85
01
02
03
04
Euro Zone
05
06
Germany
07
08
09
10
11
12
Spain
Source: Reuters EcoWin
Divergences in balance of payments performance
Diverging Trade Performance for Selected EU Countries
7.5
5.0
5.0
2.5
2.5
0.0
0.0
-2.5
-2.5
-5.0
-5.0
-7.5
-7.5
-10.0
-10.0
-12.5
-12.5
-15.0
-15.0
00
01
02
Germany
Greece
03
04
Spain
Italy
05
06
07
08
09
10
Percent of GDP
Percent of GDP
BoP Current account balance - 3 year average, % of GDP
7.5
11
United Kingdom
Ireland
Source: Euro Stat
Trend growth rates are slowing – new normal for EU might be slow growth
Estimated Trend Growth Rates for Selected Countries
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
00
01
Euro Zone
Germany
02
03
04
Greece
Ireland
05
06
Italy
Norway
07
08
09
10
11
12
13
Percent
Percent
Potential GDP, percentage change from previous period, Chg P/P
14
Spain
United Kingdom
Source: OECD
Notes