The Euro Area Crisis:
Origins, Prospects and Implications for
the World Economy and Global
Governance
Domenico Lombardi
UNLV, April 3, 2013
1
Structure
• Systemic Relevance of Eurozone
Economy & Experience
• “Great Expectations”
• Fiscal, Competitiveness and Structural
Policies
• Open Discussion on the Way Forward
2
Eurozone Population
Percent of World
5.2
5.15
5.1
5.05
5
4.95
4.9
4.85
4.8
4.75
4.7
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Eurozone Population
Source: World Bank
Note: The eurozone refers to the 17 countries that currently have the euro as their currency. These countries are Austria,
Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal,
Slovakia, Slovenia, and Spain
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3
GDP Market Prices
Percent of World
24
23
22
21
20
19
18
17
16
15
14
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Eurozone GDP Market Prices (as a share of World)
Source: IMF WEO
Note: Data after 2011 based on staff estimates
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4
GDP PPP
Percent of World
19
18
17
16
15
14
13
12
11
10
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Euroarea GDP PPP (Share of World)
Source: IMF WEO
Note: Data after 2010 (2011 for some countries) based on staff estimates
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5
Eurozone Trade
Percent of World
33
32
31
30
29
28
27
26
25
24
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Eurozone Trade (Share of World)
Source: World Bank WDI
Note: Trade is defined as the sum of exports and imports of goods and services
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6
Euro Share of Banks’ International
Positions, %
42
40
38
36
34
32
30
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012*
Euro Share allocated
Source: BIS
Note: The euro share of banks’ international position is defined as euro-denominated, allocated assets vis-à-vis all sectors
*2012 point reflects up through Q3
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7
Relevance of European
Regional Experience
• European integration has set the
benchmark in regional policies by
providing practical case studies in
terms of legal frameworks, intermediate
milestones, successes and (now)
failures
8
Forecasted and realized GDP growth
Euro area, %
5
4
3
2
1
0
-1
-2
-3
-4
-5
2000
2002
2004
2006
Forecasted Growth Rate
Source: IMF World Economic Outlook, from September 1998 to October 2012
2008
2010
2012
Realized Growth Rate
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9
Forecasted and realized GDP growth
Italy, %
4
3
2
1
0
-1
-2
-3
-4
-5
-6
2000
2002
2004
2006
Forecasted Growth Rate
2008
2010
2012
Realized Growth Rate
Source: IMF World Economic Outlook, from September 1998 to October 2012
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10
The Convergence
Government Bond Yields, 10 years’ maturity
18
16
14
12
10
8
6
4
2
1995
1996
1997
1998
Germany
Source: Eurostat
1999
2000
Greece
2001
Spain
2002
2003
Italy
2004
2005
2006
2007
Portugal
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11
Government Gross Debt
% of GDP
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
France
57.4
56.9
59.0
63.2
65.0
66.7
64.1
64.2
68.2
79.2
82.3
86.0
90.0
Germany
60.2
59.1
60.7
64.4
66.2
68.5
67.9
65.4
66.9
74.7
82.4
80.6
83.0
Greece
103.4
103.7
101.7
97.4
98.9
101.2
107.3
107.4
112.6
129.0
144.6
165.4
170.7
Italy
108.5
108.2
105.1
104
103.4
105.4
106.1
103.1
105.7
116.0
118.6
120.1
126.3
59.4
55.6
52.6
48.8
46.3
43.2
39.7
36.3
40.2
53.9
61.3
69.1
90.7
Spain
Source: IMF WEO, October 2012
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12
Government Fiscal Deficit
% of GDP
2000 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-1.5
-1.7
-3.3
-4.1
-3.6
-3.0
-2.4
-2.8
-3.3
-7.6
-7.1
-5.2
-4.7
1.3
-2.8
-3.7
-4.1
-3.8
-3.4
-1.6
0.2
-0.1
-3.2
-4.1
-0.8
-0.4
Greece
-3.7
-4.4
-4.8
-5.7
-7.4
-5.6
-6.0
-6.8
-9.9
-15.6
-10.5
-9.1
-7.5
Italy
-0.9
-3.2
-3.2
-3.6
-3.6
-4.5
-3.4
-1.6
-2.7
-5.4
-4.5
-3.8
-2.7
Spain
-1.0
-0.7
-0.5
-0.2
-0.3
1.0
2.0
1.9
-4.2
-11.2
-9.4
-8.9
-7.0
France
Germany
Source: IMF WEO, October 2012
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13
Government Structural Balance
% of potential GDP
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
France
-2.7
-2.6
-3.4
-3.4
-3.2
-2.9
-2.3
-3.0
-3.0
-4.7
-4.6
-3.5
-2.8
Germany
-1.6
-2.8
-3.1
-3.2
-3.3
-2.6
-2.3
-1.1
-0.9
-1.2
-2.3
-0.9
-0.5
Greece
-2.3
-3.3
-3.7
-6.2
-8.5
-6.7
-8.7
-10.6
-13.9
-18.6
-12.1
-8.3
-4.5
Italy
-3.1
-4.9
-5.0
-5.3
-5.0
-5.2
-4.1
-3.3
-3.5
-3.6
-3.3
-3.4
-0.6
Spain
-1.1
-1.8
-1.1
-1.0
-1.0
-1.6
-1.3
-1.1
-5.0
-9.0
-7.3
-7.5
-5.4
Source: IMF WEO, October 2012
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14
Exports and Imports
(Italy, % of GDP)
35
30
25
20
Exports
Imports
15
10
5
0
2000
2007
Source: IMF International Financial Statistics
2008
2009
2010
2011
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15
Exports and Imports
(Spain, % of GDP)
40
35
30
25
Exports
20
Imports
15
10
5
0
2000
2007
Source: IMF International Financial Statistics
2008
2009
2010
2011
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16
Exports and Imports
(France, % of GDP)
35
30
25
20
Exports
Imports
15
10
5
0
2000
2007
Source: IMF International Financial Statistics
2008
2009
2010
2011
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17
Exports and Imports
(Germany, % of GDP)
60
50
40
Exports
30
Imports
20
10
0
2000
2007
Source: IMF International Financial Statistics
2008
2009
2010
2011
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18
Degree of Openness
Total trade as a percent of GDP
100
90
80
70
60
50
40
30
20
10
0
Italy
Spain
Germany
2000
Source: IMF International Financial Statistics
Note: Total trade equals exports plus imports
France
UK
2011
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19
Germany’s Trade with Euro area
Ratio of “Trade with Euro area” to “Trade with world”
47
46
45
44
43
42
41
1999
2001
2003
Export Ratio
Source: IMF Direction of Trade Statistics, and author’s own calculations
2005
2007
2009
2011
Import Ratio
Domenico Lombardi
20
8
108
7
106
6
104
5
102
4
100
3
98
2
96
1
94
0
-1
92
-2
90
1999
2001
2003
Current Account Balance
Source: IMF WEO, Oct 2012
2005
2007
2009
Real Effective Exchange Rate, 2005=100
Current Account Balance (% of GDP)
German Current Account Balance
and Real Effective Exchange Rate
2011
Real Effective Exchange Rate
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21
Current Account Balances: Northern v.
Southern Europe (Billions USD)
600
500
400
Billions USD
300
200
100
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-100
-200
-300
-400
Northern Europe
Northern Eurozone
Southern Europe
Source: IMF World Economic Outlook, October 2012 (and latest estimates for China and U.S.)
Notes: Northern Eurozone includes Austria, Finland, Germany, and the Netherlands. Northern Europe includes Northern Eurozone plus Denmark, Norway,
Sweden, and Switzerland. Southern Europe includes Greece, Italy, Portugal, and Spain. The U.S. current account balances in billions USD for 2005, 2008,
2011, and 2012 proj .respectively: -745.8, -677.1, -465.9, -478.9. The Chinese CA balance in billions USD for the same years respectively: 134.1, 412.4, 201.7,
220.0.
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22
Current Account Balances
(in % of GDP)
12
10
8
6
4
2
0
-2
-4
-6
-8
2000
2002
2004
Euro area
Source: IMF World Economic Outlook, October 2012
2006
China
Germany
2008
2010
2012
United States
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23
Productivity and Labor Compensation
in Selected Countries: France
150
140
130
120
110
100
90
1999
2000
2001
2002
2003
2004
Labor Compensation per Unit Labor Input
Source: OECD
2005
2006
2007
2008
2009
2010
2011
Labor Productivity per Unit Labor Input
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24
Productivity and Labor Compensation
in Selected Countries: Italy
150
140
130
120
110
100
90
1999
2000
2001
2002
2003
2004
Labor Compensation per Unit Labor Input
Source: OECD
2005
2006
2007
2008
2009
2010
2011
Labor Productivity per Unit Labor Input
Domenico Lombardi
25
Productivity and Labor Compensation
in Selected Countries: Spain
150
140
130
120
110
100
90
1999
2000
2001
2002
2003
2004
Labor Compensation per Unit Labor Input
Source: OECD
2005
2006
2007
2008
2009
2010
2011
Labor Productivity per Unit Labor Input
Domenico Lombardi
26
Productivity and Labor Compensation
in Selected Countries: Germany
150
140
130
120
110
100
90
1999
2000
2001
2002
2003
2004
Labor Compensation per Unit Labor Input
Source: OECD
2005
2006
2007
2008
2009
2010
2011
Labor Productivity per Unit Labor Input
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27
Unit Labor Costs
Germany vs Southern Europe, 2000=100
140
135
130
125
120
115
110
105
100
95
90
2000
2002
Germany
Source: OECD
2004
Greece
2006
Spain
Italy
2008
2010
Portugal
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28
To Close the 2000-10 Gap in 2016
Case A
Germany
Greece
Spain
Italy
Portugal
Case B
Germany
Greece
Spain
Italy
Portugal
Productivity, Labor Compensation and Unit Labor Costs
2011-2016 Proposed Average Annual Growth Rates
Productivity
0.70%
0.70%
0.70%
0.70%
0.70%
Labor
Compensation
1.50%
-2.90%
-1.97%
-2.71%
-1.64%
Unit Labor
Costs
0.79%
-3.58%
-2.65%
-3.39%
-2.33%
Productivity, Labor Compensation and Unit Labor Costs
2011-2016 Proposed Average Annual Growth Rates
Productivity
0.70%
2.00%
2.00%
2.00%
2.00%
Labor
Compensation
1.50%
-1.65%
-0.71%
-1.45%
-0.37%
Unit Labor
Costs
0.79%
-3.58%
-2.65%
-3.39%
-2.33%
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29
To Close the 2000-10 Gap in 2016
Case C
Germany
Greece
Spain
Italy
Portugal
Case D
Germany
Greece
Spain
Italy
Portugal
Productivity, Labor Compensation and Unit Labor Costs
2011-2016 Proposed Average Annual Growth Rates
Productivity
0.70%
0.70%
0.70%
0.70%
0.70%
Labor
Compensation
4.00%
-0.51%
0.44%
-0.31%
0.78%
Unit Labor
Costs
3.27%
-1.20%
-0.26%
-1.01%
0.08%
Productivity, Labor Compensation and Unit Labor Costs
2011-2016 Proposed Average Annual Growth Rates
Productivity
0.70%
2.00%
2.00%
2.00%
2.00%
Labor
Compensation
4.00%
0.77%
1.74%
0.97%
2.08%
Unit Labor
Costs
3.27%
-1.20%
-0.26%
-1.01%
0.08%
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30
What Must be the Wage Behavior in the
South to Close ULC Gap in 5 Years?
•
Productivity in Germany is assumed to grow at 0.7% per
annum, close to the rate achieved in 2000-10 average
•
Case A:
•
•
Wages in Germany grow at 1.5%
•
Productivity in South grows at 0.7%
Case B:
•
Wages in Germany grow at 1.5%
•
Productivity in South grows at 2.0%
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What Must be the Wage Behavior in the
South to Close ULC Gap in 5 Years?
•
•
Case C:
•
Wages in Germany grow at 4.0%
•
Productivity in South grows at 0.7%
Case D:
•
Wages in Germany grow at 4.0%
•
Productivity in South grows at 2.0%
Domenico Lombardi
32
The Ease of Doing Business Rankings
Overall and by Sub-Index, 2013
Resolving Insolvency
Enforcing Contracts
Trading Across
Borders
Paying Taxes
Protecting Investors
Getting Credit
Registering Property
Getting Electricity
Dealing with
Construction
Permits
Ease of
Doing
Business
Rank
Starting a Business
Sub categories
U.K.
7
19
20
62
73
1
10
16
14
21
8
Germany
20
106
14
2
81
23
100
72
13
5
19
France
34
27
52
42
146
53
82
53
27
8
43
Spain
44
136
38
70
57
53
100
34
39
64
20
Italy
73
84
103
107
39
104
49
131
55
160
31
Source: World Bank Doing Business Report, 2013
Domenico Lombardi
33
Overall Nearness to Frontier
100
90
80
70
60
50
40
30
20
10
0
2.6
-0.5
8.6
6.9
62
France
77
55
Germany
Greece
2005
1.4
3
64
69
Italy
Spain
83
United
Kingdom
Improvement between 2005 and 2012
Deterioration between 2005 and 2012
Source: World Bank Doing Business Report, 2013
Domenico Lombardi
34
THANK YOU!