Alexandra Veselková
Matej Valach
Smolenice 2013
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Global scale → high rate of synchronization of the World
economy (high rate of liberalization of foreign trade,
mobility of global capital, integration of financial markets,
transnationalization, interdependency of the World
economy)
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Decline of competitiveness of developed economies
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The biggest risks of future development of the World
economy → fiscal sustainability, sustainability of external
economic equilibrium, financial stability
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Not following criteria and their weak enforcement:
incapability of Stability and Growth Pact (SGP) to keep
budget deficits and deficits of state debt in euro area
countries → state within euro area should not exceed limit
of 60% GDP → 100% violate Greece, Spain, Portugal,
Great Britain, France
Responsibility of national governments with present
authorities at the head of ECB → did not use tools like
minimum reserves (MR) and control of growth of bank
loans; different rate of MR was not used on different bank
national markets (Spain, Ireland) and to increase MR on
the markets with quick growth of loans
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In 2000 - 2008 the economic growth was based mainly on
expansive monetary and fiscal policy
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Great amount of money flowed into economies
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High government expenditures led to increase of GDP,
stimulation of Aggregate demand and to growth of debts of
course
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To get rid of debts it is necessary for the country to rise
taxes, or lower another expenses
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This means lowering disposable income of consumer and
consequently reduction of consumption and aggregate
demand
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If there is no consumption, sales area is diminishing,
supply is going down
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Unemployment is growing and again incomes are lowered
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Currency integration proceeded at fast tempo
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Loan flowed over boarders in growing amounts
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Interest rates converged
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Euro area stimulated growth of trade
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"South wing countries„ grew fast
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First decade of euro created illusion, that it is functional and
successful project
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Euro area was not an optimal currency area already at its
birth and was not aiming to it → differences in
competitiveness were remaining
Capital flowed into economies that offered higher interests,
but just as a price for higher risk (this risk creditors – mainly
banks form the countries of the „core“ of the euro area –
ignored the assumption „in the worst scenario there will be
some help for more risky economies“ → euro area thus did
not bring expected better allocation of capital
Easy access to cheap loans stimulated quick growth of
private and public expenditures → current account deficits
Inflow of capital and low real interest rates in countries with
higher inflation rate → overheating of these economies
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Some countries of the euro area did not use economic
growth for consolidation of public finance (to lower
structural debts)
Rules for euro area were not followed
SGP should be enough to enforce fiscal discipline, but
solution for financial crises was not defined, or setup
when helping governments that got into insolvency or
exit from euro area
In 2005 SGP was loosen (upon Germany and France)
Political elites were not prepared for the crisis: opinion
changes, minimizing the problems, buying time
instead of real solution
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Because of reforms in labour market grew labour costs in
Germany slower than elsewhere and it gained price
competitiveness
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Gap in competitiveness between Germany and other
countries in last decade strongly increased
Zdroj: Eurostat
Zdroj: Eurosta
Zdroj: Eurostat
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Countries lived „beyond their means“ before the crisis –
Greece in the long run
Spain, Ireland operated relatively moderately, but 1) saving
the banks 2) supporting the supply during the crisis 3)
economic decline considerably worsen their fiscal situation
Financing the public debt on the market became too
expensive for some countries in some period (or
impossible) → threat of debt spiral (amount of debt is out of
control)
Fiscal policy so became additional source of shocks and
not their absorber
Public finance of such country get into so bad state, that
their consolidation gets priority from anti-cyclic
(stabilization) function and this even helps recession
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There is the biggest saving in euro area ever
Structural deficits are being reduced, but not debt
Due to weak economic growth or recession there are more
intense savings to fulfill the goals, but they are even though
often not fulfilled
Interest rates are close to zero
Inflation is above 2 %
ECB is buying bonds
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Bank union is being suggested, without which ECB has no
control over monetary policy of the "South wing countries„
(despite effort of ECB to lower interest rates, in these
countries interest rates went up) → effort to prevent
existence of too many premiums for different banks due to
their country of origin
Concerning negative production gap, systematic risks in
banking sector and from that risk premiums and chilling of
loans there should be expansive monetary policy → but
monetary policy has no longer enough space for supporting
the economy with respect to low level of real interests and
therefore is the attention paid to fiscal policy
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negative feedback among: 1) the vulnerable financial system,
2) stagnant economies 3) indebted public finances
fiscal consolidation works with the cycle → slowdown of
growth
stabilization of the debt of some countries come up in a few
years, on a high-level → economic slowdown increases the
risk of debt spiral spin
slow implementation of structural reforms in the South wing
countries → structural differences between countries remain
outflow of deposits from some South wing countries
weakening political support for the euro project
in France and Germany GDP has reached around pre-crisis
levels in the South wing countries is found below and under
the risk of further decline
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the main problem of the euro area → structural
heterogeneity, inadequate institutional arrangements and
inadequate functioning (and respect) of the rules
single monetary policy deepens the differences among the
countries of the south wing and the core euro area
Euro area crisis does not lie in the possibility of the exit of
some countries, but in the persistent the method of its
(dis)functioning
The largest EU project with the ambition to significantly
accelerate its growth to a level ensuring global
competitiveness did not bring growth
a threat of the euro area collapse remains, with potentially
disastrous consequences for all
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Given the state of the economy (negative output gap) the
character of consolidation should be:
gradual → credible reform of the pension system now
spread consolidation in the future, reliable debt brake boost
confidence
Growth oriented in long run → for example, focus more on
reducing costs particularly benefits or advantages (except
of those for the lower income groups) and consumption of
the state (rather close institutions and fire workers than chill
costs in general, if raise taxes then specially property and
consumption ones (so-called fiscal devaluation to increase
competitiveness)
acceptable
Thank you for your attention 
alexandra.veselkova@euba.sk
matej.valach@euba.sk
Príspevok je výstupom vedeckého projektu VEGA č. 1/0570/11
„Spotreba a kvalita života domácností SR vo väzbe na ich spotrebiteľské rozhodovania v
európskom kontexte“