Transcript EU policy impacts and perspectives

EU policy impacts and
perspectives
Martin Myant
ETUI
Is the crisis over?
• Need to remember origins…
• Started with credit and banking crisis in USA,
taking hold in 2008,
• Spread around world with restrictions on credit,
and what depends on credit; construction and
some manufacturing industry
• Recovery for manufacturing fairly rapid
• ‘over’ for much of the world
• EU goes into renewed decline from 2010, ECB
forecasts 0.4% drop in eurozone for 2013.
GDP, annual % change, IMF
19952004
World 3.6
USA 3.3
euro 2.2
Dev 7.1
Asia
2009 2010 2011 2012
-0.6
-3.5
-4.4
6.9
5.2
2.4
2.0
9.9
4.0
1.8
1.4
8.1
3.2
2.2
-0.6
6.6
How is Europe (EU) different?
• Some countries; housing bubbles and construction booms,
financed by credit, from outside that country (NOT only
eurozone)
• Construction does not recovery (always dependent on
credit)
• Also loss in car (exports), but quickly recovers
• Government policies from 2010, austerity and cutting
spending, both where imposed (Greece) and where not
imposed (Czech Republic)
• Variations between countries and widening divergences
• Takes us into prolonged depression, and affected
thinking/attitudes/expectations
• Very hard to recover; saving more, accepting lower wages
Example - employment in Spain,
millions, Eurostat
Industry
Construction
Public sector
All
2000
2.8
1.6
2.8
13.3
2007
2.7
2.4
3.5
16.7
2011
2.2
1.2
3.7
15.0
And unemployment? % rates, Eurostat
Euro
Greece
Spain
Germany
UK
Ireland
2007
7.6
8.3
8.3
8.7
5.3
4.7
2012
11.4
24.3
25.0
5.5
7.9
14.7
So who are the unemployed?
• Links to construction booms
• Links to declining industries
• How could they be found alternative
employment?
• What of youth unemployment?
• dramatic figures, partly misleading
Unemployment rates and ratios, end
2012, 15-24 and 15-64
Rate
euro
23.7
Greece
57.9
Spain
55.2
Germany 7.9
Denmark 14.2
Estonia
19.3
UK
20.7
Ratio
9.6
16.1
20.6
4.1
9.1
8.7
12.4
Rate
11.4
24.3
25.0
5.5
7.5
10.2
7.9
Ratio
7.3
13.5
14.4
4.0
5.5
6.6
5.5
EU analysis of crisis
• Frequent statements;
• Excessive public debt
• Excessive (unit) labour costs (interpreted as
the same), so wages are too high
• Countries lack competitiveness and ran into
debt, needs to be repaid and wages need to
fall
• Comments; no link to how we know crisis started,
ignores variety among countries, ignores how debts
arose
• Not a ‘competitiveness’ problem across eurozone
(current account surplus 1.2% of GDP in 2012)
• Wage costs won’t change much, quickly, within
eurozone (export quite different products, olive
oil.v.cars, wages important over quite long time periods
– where to put investment)
• Trade with rest of world as important (German exports
do well, Portugal needs transformation – not lower
wages – requires skills-education-investment)
• More on variety among countries, on how debts
arose
• eg Spain & Ireland, from banks after constr boom,
• Italy & Portugal from long-term low growth –
latter failed to transform to exporting high valueadded products,
• Greece, does include gvt spending, also banks
• Cyprus, banks, after lending to Greece
• BUT – figure they see is PUBLIC debt, after it has
taken over private debt
Is public debt a problem?
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Barroso; ‘unsustainable’, root of problems
Way for gvts to finance activities
Borrow (from banks, funds, public – so it is from us)
Repay, with interest
Low rate of interest, economic growth, repay easily (-ve real rates of
interest for short-term credits, now)
‘unsustainable’ = lenders will not trust in repayment, demand ever
higher interest rate, cannot afford it, state bankruptcy
NO SET LEVEL when that happens, eurozone has 60% of GDP limit
Central bank can resolve it (create money, guarantee, not ideal, but)
Levels rose with crisis (for most, NOT before), bank debts + low tax
revenues + GDP falls
Gvt debt/GDP, %, IMF & Eurostat
19972006
USA
62.2
Germany 62.9
Italy
108.7
Greece
98.9
Ireland
39.3
UK
41.9
2008
2012
75.5
66.8
106.1
107.4
44.5
52.2
106.5
82.0
127.0
156.9
117.6
90.3 (155)
Debt crisis
• Greece 2010, looked for IMF-EU help (troika), but high interest rates, so
debts continued to grow,
• No resolution, new bail-out 2012, this time banks had to suffer losses,
• (total amount lent + promised more than annual GDP)
• Fears (by banks) of same – Ireland, Portugal, Spain, then Cyprus, because
banks had lent to Greece
• Conditions; budget cuts and then labour market ‘reforms’ = pay cuts,
restrict collective bargaining, less regulation
• New element for Cyprus, depositors pay
• Predicted quick recovery, but led to lower GDP (cuts spending, cuts wages,
leads to consumer caution), solves no fundamental economic problem…
• Biggest ever IMF programmes and worst ever results
• Solution as in UK, central bank takes the debts, unacceptable… against its
rules…
What has been resolved?
• Eurozone could have split up
• if a country defaults on debt, or leaves the common
currency, establishing its own and (inevitably) devaluing,
that hits banks that have lent and threatens financial chaos.
• Bad for all. But all countries have accepted the terms (some
willingly, some reluctantly?). Could have bluffed? What if
Spain leaves, or Italy?
• Mario Draghi, September 2012, will do everything
necessary to save the euro, ECB found means to take over
state debts, to ‘print money’
• Still high interest rates for some, but very low for others (eg
France)
Where are we now? – Greece
• Greatest ‘success’ in cutting wages, 20% drop
in average real wages 2009 to 2012,
• Biggest fall in public sector
• No impact on export performance (anyway
only about 20% of GDP)
• ‘internal devaluation’, but nothing new to
export, little price sensitivity
• Lower incomes, lower imports, only ‘success’
Where are we now? – Ireland
• Presented as great success story, but no recovery here
• Exports over 100% of GDP, real wages fell by 4%, but
more in public sector (irrelevant to exports)
• Exports actually declined in manufacturing (Dell moved
out…)
• Big success in ‘computer services’, high wages, low
employment (3% of total employment), come because
of lower business tax than in UK
• Total employment fell (2008-2011) 14%, 56% in
construction, fairly stable in public sector,
• but no jobs in Ireland?
Where are we now? - Latvia
• Another claimed success story that is said to
prove internal devaluation works
• Massive GDP fall and recovery, still 12% below
2007 level in 2012. Real wages fell by same
amount
• Employment fell by 20%, but 12% decline in
population (2007-2013) or 19%, of prime working
age
• Continual trade deficit, exports raw materials or
goods on their way to (or from) Russia
• EU money to help
Where are they now? - Germany
• GDP fell in 2009 (cars/machinery) by 5.1%, but
strong recover 2010 and 2011 (exporting to
outside EU, growth elsewhere in world)
• Very low growth after that (affected by
austerity at home and in EU)
• Exports in 2012 below 2008 level, but big
growth for China (also USA) while declines
from EU
• Current account surplus… 7% of GDP
What will happen now?
• Predict diverging trends; with no policy changes – further debt bail outs,
• Growth and structural transformations - not happening, prospect of more
decline, stagnation, widening gaps,
• Some countries doing OK, but danger of loss of all their savings, and
markets if the euro fails, default or break-up of eurozone threatens all,
• Pressure to do something, but can be policies that solve nothing (more
internal devaluation)
• Fears from population, accept lower wages, lower living standards
• Immense political pressures around fears of state bankruptcy, gives
legitimacy to austerity (fears in ALL countries, whether justified there or
not)
• Political threats and uncertainties
• Solutions? Reduce the debt burdens, relax the rules, allow borrowing,
allow wage rises and investment
• But not easy politically and no rapid improvement for economies