The Crisis of the Eurozone and
Broader Repercussions
- Jean Monnet Lecture Series Center for European and International
Affairs – University of Nicosia,
20th of March 2012
Uwe Wixforth LL.M. - Embassy of the
Federal Republic of Germany -
I. Form and structure of the current crisis

Do we speak about: EURO crisis or debt crisis?

Features of the crisis:



Overall debt of some countries is far too high
Annual budget deficit is too high
We are talking about how much new debt is adding to the
total debt. NO memberstate is reducing debts currently !
Consequence because of interest rates:
debt increases further more and more (see
rating agencies judgement; is this fact fair for young
generation ??)

23 of 27 Member States in the Excessive Deficit Procedure
(EDP)
Uwe Wixforth LL.M. - Embassy of the
Federal Republic of Germany -
Debt as a percentage of GDP, 20092010
National debt of Greece on the
31/12/2010: 340,29 Mrd (149,7%)
31/12/2011: 367,98 Mrd (170,9%)
Uwe Wixforth LL.M. - Embassy of the
Federal Republic of Germany -
scource: European Commission - Eurostat
Annual budget deficit 2010
Uwe Wixforth LL.M. - Embassy of the
Federal Republic of Germany -
II. Possible solutions of the debt crisis

Who pays for all the debt in the end ?





Private Sector Involvement (PSI)
Austerity Measures of Member States
Solidarity = International help
(EU/ECB/IMF)
Germany`s position: All three sectors must be in balance
Rule for the future: Fiscal Compact / ESM establish policy for
fiscal stability
Uwe Wixforth LL.M. - Embassy of the
Federal Republic of Germany -
1) Solution of urgent problem Greece:
First pillar: Private Sector Involvement (PSI)


This pillar refers formally only to Greece, not for the
other Member States. But for other MS: Collective
Action Clauses (CAC)
Results of Eurogroup ministerial meeting 21./22.
February 2012 on Greece :


haircut 53,5 %
Reduction of the debt: 107 Mrd €
Interest rates of the new Greek government bonds:
 until 2015: 2%
 until March 2020: 3%
 until 2042: 4,3%
Target: National debt in 2020: 120,5 %
Uwe Wixforth LL.M. - Embassy of the
Federal Republic of Germany -
2) Provision for the future: Fiscal
compact
 Signed by 25 MS ( not UK, CZ ) on 02.03. 2012






Content:
Government budgets shall be in balance or surplus.
Structural deficit must not exceed 0,5 % of nominal GDP as a rule.
Rules shall be fixed in MS at constitutional or equivalent level
Automatic correction mechanism on tailor made proposal of COM
Jurisdiction of ECJ, possible fine of 0,1 % of GDP ( to ESM for € zone countries )
 MS agree to take measures for good functioning of € - area,
fostering competitiveness, promoting employment, reinforcing
financial stability
Scource:, Text of Fiscal Compact, WIKIPEDIA
Uwe Wixforth LL.M. - Embassy of the
Federal Republic of Germany -
3) Euro - bonds ?
I. Economic meaning:
Joint bonds issued by all Euro-Zone Member
States, sharing the same parameters, i.e. the same
interest rate. Joint liability of all MS.
II. Germany`s approach
„Moral hazard“ may be involved, because no
difference between the competitiveness of the
specific economies is taken into account
Uwe Wixforth LL.M. - Embassy of the
Federal Republic of Germany -
Effect on Competitiveness
a)
Member States with a comparatively low
competitiveness get relatively cheap money; i.e.
cheaper as they would get it under market
conditions. Capital costs are lower as in market
conditions
b)
Member States with a comparatively high global
competitiveness (AAA-countries) have to pay
relatively more for Government bonds as normal.
Capital costs are higher as in market conditions
Uwe Wixforth LL.M. - Embassy of the
Federal Republic of Germany -
Possible effects for MS :
a) Member States with comparatively low competitiveness:
Cheap money might be at least partially used for consumption
purposes and not for investment to the required extent
resulting in
higher debts, not in improvening competitiveness
b) Member States with comparatively high competitiveness:
resulting in
higher refinancing costs, economic performance is slowing
down in the long run
Risk: Europes main Engines are slowing down
Uwe Wixforth LL.M. - Embassy of the
Federal Republic of Germany -
Global Competitiveness is crucial !
Nowadays almost all major markets for goods and
services are global markets („Globalisation“)
Therefore Euro-Zone economies must find ways to compete on global
markets if they want to sell goods and services to the world !
Any financial aid can only assist with the right steps to be taken for MS
taking into account their respective economy. Permanent transfers
without improving competitiveness are not helpful in the long run.
Aid is just temporary, to „buy time“ for implementing reforms
Feel free to discuss with us now !
Σας ευχαριστώ για την προσοχή
σας
Thank you for your attention
fin-1@niko.auswaertiges-amt.de
uwe.wixforth@diplo.de
Uwe Wixforth LL.M. - Embassy of the
Federal Republic of Germany -