Presenta

2. AGENDA
• The story so far
• Greece: a brief update
• The limits of austerity
• The EU roadmap
• The mechanics of contagion
• What hope for reform?
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3. 1. The story so far.
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4. Sovereign Investment
Green shoots debt crisis stalls Inflation peaks,
Africa slows
Fukushima
Stimulus
Investment
stalls
China
slowdown
Uncertainty
peaks US politics,
fundamentals
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5. 40
30
20
10
0
-10
-20 Americas
Middle East
-30 Asia Pacific
Central and Eastern Europe
-40
South Asia
Western Europe
-50
Africa
-60
Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012
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6. IS IT ALL DOWN TO EUROPE?
• Stimulus withdrawal (incl. China)
• Bank capitalisation & Basel III
• Household and corporate deleveraging
• Falling imports
• Corporate cash hoarding
• Conflict & civil unrest
• Uncertainty
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7. WHAT IS THE EURO CRISIS?
• Debt sustainability & market access
• Bank capitalisation, leverage & liquidity
• Contagion
• De-integration & bank-sovereign loops
• Falling output; permanent capacity
loss
• Loss of human and social capital
• Incomplete EU institutional framework
• Stretching of legitimacy and mandates
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8. 2. Greece: a brief
summary
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9. The global body for professional accountants

10. Bank of Greece (2012) Report on the Recapitalisation of Greek Banks
http://www.bankofgreece.gr/BogEkdoseis/Report_on_the_recapitalisation_and_restructuring.pdf
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11. The global body for professional accountants

12. CREDIT (1) TO THE DOMESTIC PRIVATE SECTOR
(Outstanding amounts and net flows (2) in EUR millions)
% change Nov 2011-12
Ι. TOTAL -4.6%
ΙΙ. ENTERPRISES -5.4%
ΙΙΑ. NON-FINANCIAL CORPORATIONS -4.1%
1. Agriculture -7.0%
2. Industry -4.2%
2.1 Mining and Quarrying -3.6%
2.2 Manufacturing -4.2%
3. Trade -8.3%
4. Tourism 0.8%
5. Shipping -3.1%
6. Construction -5.0%
7. Electricity - Gas - Water 6.3%
8. Storage and Transport services excl. Shipping -6.4%
9. Remaining branches -3.8%
9.1 Information and Communication -4.1%
9.2 Real Estate Activities -0.3%
9.3 Professional and other activities -14.7%
9.4 Other -1.1%
ΙΙΒ. INSURANCE & OTHER FINANCIAL -24.2%
ΙΙI. UNINCORPORATED ENTERPRISES -2.8%
ΙV. INDIVIDUALS ETC (2) -3.9%
1. Housing loans -3.5%
2. Consumer credit -5.1%
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3. Other loans 0.5%

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17. 3. The limits of austerity.
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20. IMF:
“We got fiscal
multipliers wrong.
We assumed 0.5;
they are between
0.9 and 1.7”
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21. Value-added business
opportunities
Austerity
New orders
Access to falling
growth Sector-specific
capital factors Global economy seen
as making progress
Business Poor
size policies Very good Revenues
policies falling
Unstable More significant influence on confidence
customers
ACCA/IMA 2012: Global Economic Conditions Survey Q4 2011
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22. Unstable Sector-
suppliers specific Potential for new
orders?
Unstable Finance &
Poor customers Gov support Falling
policy revenues
‘Excessive’ Profitable
‘Excessive’ Falling new
austerity SME projects
spending orders
Global More significant influence on investment
Economy
improving
ACCA/IMA 2012: Global Economic Conditions Survey Q4 2011
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23. Labour taxes only Capital taxes only Labour &capital taxes Real 10 yr yields
Max add tax Max interest Max add tax Max interest Max add tax Max interest GDP Cons
yield/GDP rate yield/GDP rate yield/GDP rate
42.7% is the limit!
Mathias Trabandt & Harald Uhlig, 2012. "How Do Laffer Curves Differ Across Countries?," NBER Chapters, in: Fiscal Policy after the
Financial Crisis, National Bureau of Economic Research, Inc.
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24. DEBT SUSTAINABILITY
• Debt < (NPV of future fiscal surpluses)
• This is a moving target in every way.
• In practice, policymakers use arbitrary
thresholds
• 120% debt/GDP is the best example
• Prisoners of austerity v. prisoners of
liquidity
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25. Arlsanalp & Tsuda, 2012. “Tracking global demand for advanced economy sovereign debt," IMF Working Papers 12/284,
International Monetary Fund
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28. NOT ALL AUSTERITY IS THE SAME
1. Improved tax administration
2. Improved procurement etc
3. Benefits cuts
4. Public consumption cuts
5. Direct tax hikes
6. Public investment cuts
7. Indirect tax hikes
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30. Quick Q&A Break?
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31. 4. The EU Roadmap.
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32. 6-pack Single
(macro imbalances, Supervisory
budget surveillance, co- Mechanism
ordination and Recovery and
CRD / CRR IV Resolution
enforcement)
Deposit Directive
Treaty on stability, Guarantee Single resolution
coordination & Scheme mechanism
governance (fiscal Directive
compact)
ESM
Operational
Co-ordination of Framework
national reforms
Reform and
solidarity
‘contracts’ Participation of
Parliaments and ECB Outright Monetary
between MS Transactions
and EU EP in further
institutions integration
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34. Worse, what if Europe
isn’t solvent?
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35. Delia Velculescu, 2010. "Some Uncomfortable Arithmetic Regarding Europe’s Public Finances," IMF Working Papers
10/177, International Monetary Fund
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36. Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010
Revision, http://esa.un.org/unpd/wpp/index.htm
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38. 5. The Mechanics of
Contagion.
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39. The global body for professional accountants
Antonakakis, N. and Vergos, K. (2012) ‘Sovereign bond yield spillovers in the Euro zone during the financial and debt crisis’ MPRA 12/2012
http://mpra.ub.uni-muenchen.de/43284/1/BYS_MPRA.pdf

40. Labour taxes only Capital taxes only Labour &capital taxes Real 10 yr yields
Max add tax Max interest Max add tax Max interest Max add tax Max interest GDP Cons
yield/GDP rate yield/GDP rate yield/GDP rate
Mathias Trabandt & Harald Uhlig, 2012. "How Do Laffer Curves Differ Across Countries?," NBER Chapters, in: Fiscal Policy after the
Financial Crisis, National Bureau of Economic Research, Inc.
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44. 6. What future for
reform?
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48. INEFFICIENCY COSTS REVENUE
• Low returns on public spending
• Loss of revenue due to poor tax
administration
• Lower tax morale
• More so in a recession
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49. Thanks!
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