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Präsentation heiner flassbeck

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AGORA Economic Conference …

AGORA Economic Conference
4th Athens Biennale 2013
12/10/13

Published in: Economy & Finance, Technology

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  • 1. The systemic crisis of the Euro – true causes and effective therapies Athens, October 2013 Professor Dr. Heiner Flassbeck flassbeck-economics.de
  • 2. The crucial relationship ULC1) growth rates and inflation for EMU2) 16% 14% 12% 10% 8% 6% 4% 2% 0% ULC growth 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 1985 1983 1981 1979 1977 1975 1973 1971 1969 1967 1965 1963 1961 -2% Inflation Notes: 1) ULC defined as gross income per capita in ECU/Euro of dependent employees divided by real GDP per total employed persons 2) 12 countries: Belgium, Germany, Finland, France, Greece, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal, Spain Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 2
  • 3. France and Germany: No real Problem Nominal wages1) and nominal productivity2) 55 55 Germany France 50 50 45 45 40 Euro per hour Euro per hour Δ €17,1 Δ €14,9 35 30 40 35 30 Δ €11,6 Δ €10,6 20 55 45 35 25 15 25 1999 Euro per hour 25 20 15 Nominal wages 3 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 15 3 Nominal productivity Notes: 1) Defined as total nominal compensation of dependent employees divided by working hours of dependent employees times number of dependent employees. 2) Defined as nominal GDP divided by working hours of total employed persons times number of employed persons. 3) 2012 values for working hours of total employees and dependent employees projected based on data from Destatis and AMECO Source: AMECO database (as per Nov-12); Eurostat; own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 3
  • 4. France got it right Real wages per hour1) and productivity2) (1999 = 100) 120 120 Germany France 115 115 120 115 110 105 100 95 90 105 2006 110 1999 110 105 Real wages per hour Fictitious real wages 3 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 95 2001 95 2000 100 1999 100 Productivity Notes: 1) Total real compensation of dependent employees divided by working hours of dependent employees times number of dependent employees. 2) Real GDP divided by working hours of total employed persons times number of employed persons. 3) Total nominal compensation of dependent employees is price adjusted by a constant inflation rate of 1.9%, apart from that same calculation as for 1) Source: AMECO database (as per Nov-12); OECD database (as per Apr-13); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 4
  • 5. Under- and overshooting: who is to blame? ULC in Germany, France and Southern Europe1) (1999 = 100) 135 130 125 120 115 110 105 100 95 ULC Germany ULC France ULC Southern Europe 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 90 Inflation target of 1.9% Notes: 1) Spain, Italy, Greece and Portugal Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 5
  • 6. Historically unique trade imbalances Growing trade imbalances mark the beginning of EMU – Current account balances in percent of GDP 10% Introduction of the Euro 8% 6% 4% 2% 0% -2% -4% -6% Germany France 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 -8% Southern Europe (Greece, Portugal, Spain and Italy) Note: Negative values represent a current account deficit Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 6
  • 7. Adjustment by some ULC from 1999 to 2012 for selected EMU countries (1999 = 100) 140 135 130 125 120 115 110 105 100 95 Germany Greece Spain France Italy 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 90 Inflation target of 1.9% Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 7
  • 8. Recession without adjustment ULC and real GDP – France (1999 = 100) 140 135 130 125 120 115 110 105 ULC 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 100 Real GDP Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 8
  • 9. Deep recession without adjustment ULC and real GDP - Italy (1999 = 100) 140 135 130 125 120 115 110 105 ULC 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 100 Real GDP Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 9
  • 10. More adjustment and more recession ULC and real GDP - Portugal (1999 = 100) 140 135 130 125 120 115 110 105 ULC 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 100 Real GDP Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 10
  • 11. Depression and adjustment ULC and real GDP - Spain (1999 = 100) 140 135 130 125 120 115 110 105 ULC 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 100 Real GDP Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 11
  • 12. The „best“ performer and a great disaster ULC and real GDP - Greece (1999 = 100) 140 135 130 125 120 115 110 105 ULC 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 100 Real GDP Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 12
  • 13. The only way out A scenario for convergence of ULC (1999 = 100) 150 +1.3% (=nominal wages of about +2.3%) 140 130 +1% (= nominal wages between 1% and 2%) 120 +3% (= nominal wages of about +4.7%) 110 Fictitious development 100 Germany France 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 90 Southern Europe (Greece, Portugal, Spain and Italy) Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 13
  • 14. The German contradiction Net financial flows1) in Germany2) 10 10 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -6 -8 -8 Private households Corporations Government 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1971 1970 1969 1968 1967 1966 1965 -10 1… 1964 20 0 -20 1963 1962 1961 -10 Foreign countries Notes: 1) Net debt position of a business sector in relation to gross national product; moving 3-year averages. 2) Western Germany until 1991; Germany starting 1991 Source: German Federal Ministry of Finance; AMECO database (as per May-11); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 14
  • 15. Titel Nominal 10YR bond yields 30% 25% 20% 15% 10% 5% Germany France Italy Belgium Greece Spain 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 0% Portugal Source: AMECO database (as per Nov-12); own calculation Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 15
  • 16. Titel Real 10YR bond yields1) 10% 8% 6% 4% 2% 0% -2% -4% Germany France Italy 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 -6% Belgium Notes: 1) Real bond yields equal nominal bond yields minus GDP inflation rate Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 16
  • 17. Titel ULC and real GDP - Ireland (1999 = 100) 160 150 140 130 120 110 ULC 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 100 Real GDP Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 17
  • 18. Titel Core country bank lending to periphery – Gross claims Core1)-periphery2) ($m) 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 2012-Q3 2012-Q2 2012-Q1 2011-Q4 2011-Q3 2011-Q2 2011-Q1 2010-Q4 2010-Q3 2010-Q2 2010-Q1 2009-Q4 2009-Q3 2009-Q2 2009-Q1 2008-Q4 2008-Q3 2008-Q2 2008-Q1 2007-Q4 2007-Q3 2007-Q2 2007-Q1 2006-Q4 0 Notes: 1) Germany, Netherlands and France. 2) Spain, Portugal, Greece and Ireland. Source: BIS; own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 18
  • 19. Titel ECB liquidity provision1) by instrument (€m) 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 Main refinancing operations 2013-Q2 2013-Q1 2012-Q4 2012-Q3 2012-Q2 Longer-term refinancing operations Marginal lending facility 2012-Q1 2011-Q4 2011-Q3 2011-Q2 2011-Q1 2010-Q4 2010-Q3 2010-Q2 2010-Q1 2009-Q4 2009-Q3 2009-Q2 2009-Q1 2008-Q4 2008-Q3 2008-Q2 2008-Q1 2007-Q4 2007-Q3 2007-Q2 2007-Q1 0 Other liquidity providing operations Notes: 1) Refers only to liquidity provision by the ECB (no absorption) Source: ECB; own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 19
  • 20. Titel Reserve Maintenance for EMU banks (€m) 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Required reserves Excess reserves 2013-Q1 2013-Q1 2012-Q4 2012-Q3 2012-Q3 2012-Q2 2012-Q1 2012-Q1 2011-Q4 2011-Q3 2011-Q3 2011-Q2 2011-Q1 2011-Q1 2010-Q4 2010-Q3 2010-Q3 2010-Q2 2010-Q1 2010-Q1 2009-Q4 2009-Q3 2009-Q3 2009-Q2 2009-Q1 2009-Q1 -50,000 Deficiencies Source: ECB; own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 20
  • 21. 5.0% 2007-… 2007-… 2007-… 2007-… 2007-… 2007-… 2008-… 2008-… 2008-… 2008-… 2008-… 2008-… 2009-… 2009-… 2009-… 2009-… 2009-… 2009-… 2010-… 2010-… 2010-… 2010-… 2010-… 2010-… 2011-… 2011-… 2011-… 2011-… 2011-… 2011-… 2012-… 2012-… 2012-… 2012-… 2012-… 2012-… 2013-… Titel Government securities held by banks to total assets 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% Source: ECB; own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 21
  • 22. Titel Holdings of sovereign bonds by domestic banks and non-residents as percent of total MFI assets – Greece 80% 70% 60% 50% 40% 30% 20% 10% Resident banks 2012-Q2 2011-Q4 2011-Q2 2010-Q4 2010-Q2 2009-Q4 2009-Q2 2008-Q4 2008-Q2 2007-Q4 2007-Q2 2006-Q4 2006-Q2 2005-Q4 2005-Q2 2004-Q4 2004-Q2 2003-Q4 2003-Q2 2002-Q4 2002-Q2 2001-Q4 2001-Q2 2000-Q4 2000-Q2 1999-Q4 1999-Q2 1998-Q4 1998-Q2 1997-Q4 0% Non-residents Source: Brueghel database of sovereign bond holdings developed in Merler and Pisani-Ferry (2012) Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 22
  • 23. Titel Holdings of sovereign bonds by domestic banks and non-residents as percent of total MFI assets – Portugal 90% 80% 70% 60% 50% 40% 30% 20% 10% Resident banks 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 0% Non-residents Source: Brueghel database of sovereign bond holdings developed in Merler and Pisani-Ferry (2012) Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 23
  • 24. Titel Holdings of sovereign bonds by domestic banks and non-residents as percent of total MFI assets – Spain 60% 50% 40% 30% 20% 10% Resident banks 2012-Q2 2011-Q4 2011-Q2 2010-Q4 2010-Q2 2009-Q4 2009-Q2 2008-Q4 2008-Q2 2007-Q4 2007-Q2 2006-Q4 2006-Q2 2005-Q4 2005-Q2 2004-Q4 2004-Q2 2003-Q4 2003-Q2 2002-Q4 2002-Q2 2001-Q4 2001-Q2 2000-Q4 2000-Q2 1999-Q4 1999-Q2 1998-Q4 1998-Q2 1997-Q4 0% Non-residents Source: Brueghel database of sovereign bond holdings developed in Merler and Pisani-Ferry (2012) Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 24
  • 25. Titel Holdings of sovereign bonds by domestic banks and non-residents as percent of total MFI assets – Ireland 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Resident banks 2012-Q3 2012-Q1 2011-Q3 2011-Q1 2010-Q3 2010-Q1 2009-Q3 2009-Q1 2008-Q3 2008-Q1 2007-Q3 2007-Q1 2006-Q3 2006-Q1 2005-Q3 2005-Q1 2004-Q3 2004-Q1 2003-Q3 2003-Q1 2002-Q3 2002-Q1 2001-Q3 0% Non-residents Source: Brueghel database of sovereign bond holdings developed in Merler and Pisani-Ferry (2012) Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 25
  • 26. Titel Holdings of sovereign bonds by domestic banks and non-residents as percent of total MFI assets – Italy 60% 50% 40% 30% 20% 10% Resident banks 2012-Q2 2011-Q4 2011-Q2 2010-Q4 2010-Q2 2009-Q4 2009-Q2 2008-Q4 2008-Q2 2007-Q4 2007-Q2 2006-Q4 2006-Q2 2005-Q4 2005-Q2 2004-Q4 2004-Q2 2003-Q4 2003-Q2 2002-Q4 2002-Q2 2001-Q4 2001-Q2 2000-Q4 2000-Q2 1999-Q4 1999-Q2 1998-Q4 1998-Q2 1997-Q4 0% Non-residents Source: Brueghel database of sovereign bond holdings developed in Merler and Pisani-Ferry (2012) Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 26
  • 27. Titel Adjustment of ULC growth rates over thirty years 25% 20% 15% 10% 5% 0% Germany Italy France 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 -5% Inflation target of 1.9% Source: AMECO database (as per Nov-12); own calculations Luxembourg - Bruxelles, 26./27.06.2013 flassbeck-economics.de 27