0
Economic policy in Europe
Minister for Finance Anders Borg
November 5, 2013

Finansdepartementet
Global growth prospects
• More stable recovery but subdued growth expectations in
the near term
– Euro zone out of recessi...
IMF: Global growth in low gear
10

GDP growth rate, per cent. Forecast from 2013

8
6
4
2
0

-2
-4
-6

Emerging markets

U...
Improved fiscal conditions

Interest spreads to German 10 year bonds
Per cent. Source: Ecowin
Greece

Ireland

Italy

Port...
Fragmented financial systems
hamper recovery in crisis countries
•

Weak financial system
with bad assets impair
transmiss...
Restoring household and business
confidence in the banking system
• Reveal banks’ bad assets and suppressed balance sheets...
Bank assets, percent of GDP,
December 2011

Source of funding, Swedish banks

Swedish krona

Source: ECB, Swiss national b...
Sweden: Policies for financial stability
and increased supply of housing
• More robust financial system
– Stonger supervis...
Long term growth – a challenge for
Europe
• Highly regulated product and service
markets
• Rigid labour markets
• Sub-par ...
Structural labour market problems in
Euro area
12

NAIRU (USA) and NAWRU (EZ)

11
10
9
8
7
6
5
4
97

99

01

03

05

USA

...
Finansdepartementet
75

61

44

42

76

Austria

Finland

Denmark

Sweden

EU15 except Luxembourg
Source: EU-commission au...
Eurozone economies in need of
structural reforms
•

Reforms to strengthen public finances
–
–

Impose stricter conditions ...
Sweden: Growth enhancing policy
agenda
• Budget bill 2013: Strengthen Sweden’s
competitiveness
– Investments in infrastruc...
-2

-8

Finansdepartementet

Ireland

France

Belgium

Portugal

-6

Source: Eurostat

0

-5

-10

-20

-15

Source: Euros...
GDP-growth

Real disposable income

Average GDP-growth 2007–2012, percent

19,1
0,1

-6

1,2

Italy

Spain

0,6

Finland

...
Conclusions
• More stable growth prospects in near
term for Europe, but large remaining
challenges
• Functioning of bankin...
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Economic policy in Europe, Anders Borgs presentation Danske Bank 20131105

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Transcript of "Economic policy in Europe, Anders Borgs presentation Danske Bank 20131105"

  1. 1. Economic policy in Europe Minister for Finance Anders Borg November 5, 2013 Finansdepartementet
  2. 2. Global growth prospects • More stable recovery but subdued growth expectations in the near term – Euro zone out of recession, but fragmented financial systems and high levels of public debt hamper growth – United States: Economic activity is gradually picking up supported by recovery in housing market – Emerging markets are expected to grow at a slower pace • More stable recovery but downside risks remain – Uncertainty surrounding US fiscal policy could harm global recovery – Risk for continued financial turbulence in emerging markets due to expectations of tapering of US monetary policy Finansdepartementet
  3. 3. IMF: Global growth in low gear 10 GDP growth rate, per cent. Forecast from 2013 8 6 4 2 0 -2 -4 -6 Emerging markets USA Euro area Sweden Source: IMF Finansdepartementet
  4. 4. Improved fiscal conditions Interest spreads to German 10 year bonds Per cent. Source: Ecowin Greece Ireland Italy Portugal 40 Sweden Denmark Finland Belgium Germany Austria Italy Netherlands France Spain Spain Portugal United Kingdom Greece Ireland Public deficits 2010 and 2014. Per cent of GDP. Source: EU-Commission 5 35 30 25 0 20 -5 15 -10 -15 2010 2014 -31 10 5 0 2010-01 2010-07 2011-01 2011-07 2012-01 2012-07 2013-01 2013-07 -30,9 Terms of trade Unit labour cost Per cent of GDP, Forecast for 2014. Source: OECD Index 2009 = 100. Source: OECD Spain Greece Ireland Italy Portugal 110 Italy Spain Ireland 6 4 2 0 -2 -4 -6 -8 -10 -12 105 100 95 90 85 80 Finansdepartementet 2009 2010 Greece 2011 2012 2013 2014 2010 2011 2012 2013 2014
  5. 5. Fragmented financial systems hamper recovery in crisis countries • Weak financial system with bad assets impair transmission of expansionary monetary policy • Restricted credit availability to private sector hampers investment and growth Source: IMF World Economic Outlook , 2013 Finansdepartementet
  6. 6. Restoring household and business confidence in the banking system • Reveal banks’ bad assets and suppressed balance sheets – Asset quality review and ECB stress tests in 2014 • Pan-European bank supervision – • Higher capital requirements increase resilience of the banking system – • Single Supervisory Mechanism CRR / CRD 4 enter into effect in 2014 Effective and orderly handling of banks in distress Finansdepartementet
  7. 7. Bank assets, percent of GDP, December 2011 Source of funding, Swedish banks Swedish krona Source: ECB, Swiss national bank and Riksbanken House prices since 1995 304 285 Foreign currency Source: Riksbanken, Statistics Sweden Household debt to disposable income ratio, 2012 223 195 194 168 146 135 134 124 121 108 101 100 92 87 Finansdepartementet Source: OECD Source: OECD 74
  8. 8. Sweden: Policies for financial stability and increased supply of housing • More robust financial system – Stonger supervision – Higher capital and liquidity requirements – Minimum risk weights for mortgages • Efficient crisis resolution mechanisms • Housing market reforms – Rent-setting for new appartments and sub-letting – Faster planning processes for new developments – Improved incentives for new-builds (e.g. in Stockholm) Finansdepartementet
  9. 9. Long term growth – a challenge for Europe • Highly regulated product and service markets • Rigid labour markets • Sub-par performance of education systems • Lack of entrepreneurship and innovation • Under-investments in infrastructure and research • Heavy tax burdens on labour and capital Finansdepartementet
  10. 10. Structural labour market problems in Euro area 12 NAIRU (USA) and NAWRU (EZ) 11 10 9 8 7 6 5 4 97 99 01 03 05 USA 07 09 11 Euro area Källa: CBO and European Commission Finansdepartementet 13
  11. 11. Finansdepartementet 75 61 44 42 76 Austria Finland Denmark Sweden EU15 except Luxembourg Source: EU-commission autumn forecast 2013 127 134 Portugal Italy Public sector debt 2014. Share of GDP, per cent 176 Belgium Italy -2,6 -2,7 Spain United Kingdom -5,3 -5,9 Ireland Portugal -4,0 -5,0 France -3,8 Netherlands Finland -2,3 -3,3 Greece -2,0 Austria Denmark Sweden Germany Public deficits 2014. Per cent of GDP Greece 121 101 Belgium Ireland 100 97 United Kingdom Spain 95 Germany France 77 Netherlands -1,9 -1,7 -1,2 0,1 High levels of public debt in Europe
  12. 12. Eurozone economies in need of structural reforms • Reforms to strengthen public finances – – Impose stricter conditions surrounding unemployment benefits – Reduce indexation of government expenditures – • Raise retirement age and reduce inflow to early retirement Broaden tax-bases Reforms to increase long-tem competitiveness – Increase incentives to work – Invest in education and training – Improve infrastructure, conditions for R&D and entrepreneurship – Increase flexibility in labour and product markets and reduce red tape – Improve efficiency of tax systems and public expenditures Finansdepartementet
  13. 13. Sweden: Growth enhancing policy agenda • Budget bill 2013: Strengthen Sweden’s competitiveness – Investments in infrastructure, research, education and lower corporate tax rate • Budget bill 2014: Increase domestic demand and improve youth employment prospects – Lower income tax rates, reduced fees for unemployment insurance, youth labour market reform Finansdepartementet
  14. 14. -2 -8 Finansdepartementet Ireland France Belgium Portugal -6 Source: Eurostat 0 -5 -10 -20 -15 Source: Eurostat Italy France Change 2000 – 2011 in per cent Belgium 10 Portugal Source: Eurostat Denmark Greece Ireland Germany Spain Portugal Italy France United Kingdom Austria Belgium Netherlands -4 Austria 0 Germany -2 Netherlands 10 United Kingdom 20 Finland 30 Finland 2011 Sweden As per cent of GDP Sweden Spanien Tyskland 2000 Spain Irland Storbritannien Portugal Nederländerna Italien Österrike Sverige Grekland Belgien Finland Frankrike Danmark 50 Netherlands Implicit tax rate on work Austria Italy United Kingdom -4 Germany Greece Finland Denmark 4 Sweden Public expenditures Tax burden 4 Change 2000 – 2011 as per cent of GDP 60 2 40 0 -6 -8 Source: Eurostat Implicit tax rate on capital Change 2000 – 2011 in per cent 2 5 0
  15. 15. GDP-growth Real disposable income Average GDP-growth 2007–2012, percent 19,1 0,1 -6 1,2 Italy Spain 0,6 Finland 2,2 Netherlands Portugal Denmark -1,1 -3,6 -15 Greece Spain Portugal Ireland -4,4 -9,1 -13,6 -20 -25 -2,5 Denmark -10 Italy -5 0,5 Ireland Finland Greece Germany France Italy Netherlands UK Spain Austria Sweden Belgium 2,4 Austria 0,9 Finansdepartementet 5,1 0 2,5 Source: OECD 5,4 France 3,7 3,6 3,4 0 -4 6,3 5 2 -24,6 8,6 Sweden 4,2 -4,2 -8,3 -1,3 UK 10 4 -2 0,3 Percentage change 2006Q3−2013Q2 (s.a.) 7,0 6,8 5,3 5,2 4,9 1,7 Employed population, aged 15−74 Percentage change 2006Q3−2013Q2 (s.a.) 6 3,1 Source: Eurostat Active population, aged 15−74 8 3,5 Greece Italy Portugal Denmark Spain Ireland UK Finland France Netherlands Belgium Austria Germany Sweden Source: Eurostat 4,7 Netherlands -3,0 -4 4,9 Portugal -3 5,5 Austria -2 6,5 -0,9 UK -0,1 -0,2 -0,4 -0,5 -1 Ireland 11,5 Germany 0 Denmark 0,4 France 0,5 Belgium 0,5 Belgium 0,8 Finland 1,1 Germany 1,2 1 Sweden 1,4 Greece 2 Percentage change 2007–2012 -15,5 -19,0 Source: OECD
  16. 16. Conclusions • More stable growth prospects in near term for Europe, but large remaining challenges • Functioning of banking systems must be improved • Need for structural reforms to strengthen long-term growth Finansdepartementet
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