The Eurozone Crisis and Turkey


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1 March 2012

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The Eurozone Crisis and Turkey

  1. 1. The European sovereign debt crisis, EMU and Turkey Dirk Verbeken European Commission Istanbul, 24 February 2012European Commission, Economic and Financial 1Affairs
  2. 2. The global financial crisishas evolved through phases Phase 1: US mortgage market crisis Phase 2: Global credit crisis Phase 3: Global economic and financial crisis Phase 4: Sovereign debt crisisEuropean Commission, Economic and Financial 2Affairs
  3. 3. Interaction of sovereign and bank-balance sheets Credit risk transferred from banks to government 2008/9 Government finances weakened further by recession Investors focus on public debt sustainability Pressure in sovereign debt markets Banking sector vulnerable via sovereign exposuresEuropean Commission, Economic and Financial 3Affairs
  4. 4. The vicious circle Slowing economy Banking sectorSovereign crisis fragility European Commission, Economic and Financial 4 Affairs
  5. 5. Responses to the crisis Remove market uncertainty relating to Greece Budgetary consolidation and growth in vulnerable Member States Firewall against contagion in sovereign debt markets Reinforcement of the EU banking sector Strengthening of euro-area governance framework European Commission, Economic and Financial 5 Affairs
  6. 6. Greece Early 2010: confidence lost May 2010: € 110 bn package Mid-2011: new package, easier conditions for existing loan End-2011: upward revisions deficit, slower growth Feb 2012: € 130 bn packageEuropean Commission, Economic and Financial 6Affairs
  7. 7. Action on vulnerable Member States Ireland: good programme implementation  market confidence is returning Portugal: structural reforms aim at switch from consumption to exports Italy: new government adopted package to address twin challenges Spain: new government adopted package for fiscal reform at all levels of governmentEuropean Commission, Economic and Financial 7Affairs
  8. 8. Firewall 1 Up to €750 bn financial stability package (support in the form of loans under strict conditionality) EFSM - €60 bn EFSF - €440 bn IMF – up to €250 bn European Financial European Financial International MonetaryStabilisation Mechanism Stability Facility Fund European Commission, Economic and Financial Affairs European Commission, Economic and Financial 8 8 Affairs Delegation of the European Union to China
  9. 9. Firewall 2: ESM Capital size and structure:  Size: € 500 bn  Paid-in capital; callable capital; guarantees;  AAA rating Instruments:  Loans (ESM stability support)  Bond purchases (Primary market support facility) Pricing: in line with IMF pricingEuropean Commission, Economic and Financial 9Affairs
  10. 10. Reinforcing the banking sector Restore confidence  9% capital ratio  submit plans to deal with shortfall ECB measures  easing of collateral requirements  reduce reserve requirements  LTRO with 3-y maturitiesEuropean Commission, Economic and Financial 10Affairs
  11. 11. Governance Reform Strengthening the SGP Preventing and correcting macroeconomic imbalances Reinforcing economic surveillance European Commission, Economic and Financial 11 Affairs
  12. 12. Reform of the SGP More focus on public debt Strengthening Enforcement Wider range of sanctions Triggered at an earlier stage More automaticityEuropean Commission, Economic and Financial 12Affairs
  13. 13. Macroeconomic Surveillance Preventive arm: – Alert mechanism – scoreboard – In-depth country analysis – Recommendation on how to tackle imbalances Corrective arm: – Excessive imbalances positionEuropean Commission, surveillance  stricter Economic and Financial 13Affairs
  14. 14. Europe 2020 Structural reforms to raise potential growth – Smart consolidation – Reforms with low costs for the budget – Priority to growth-stimulating reformsEuropean Commission, Economic and Financial 14Affairs
  15. 15. Fiscal Compact Legally binding balanced budget rule Automatic correction mechanism Ex-ante coordination of debt issuance Ex-ante coordination of major economic policy reforms Euro Summit meetingsEuropean Commission, Economic and Financial 15Affairs
  16. 16. Route to a stable EMURestore confidence via Sound public finances Spur growth and competitiveness Stable achitecture (‘reinvent EMU’) Deepening integration and financial market reformEuropean Commission, Economic and Financial 16Affairs
  17. 17. What about Turkey? Declining demand and confidence in the EU markets affect Turkish exports, FDI and growth prospects. In a G20 and IMF context, Turkey has a say and a role to play. The Derviş-plan and the way it was implemented by the government show that there is a way out…European Commission, Economic and Financial 17Affairs
  18. 18. European Commission, Economic and Financial 18Affairs