Europe, The Crisis And Global Economy

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  • Ladies and Gentlemen, Recent events have violently reminded to all of us that we live in a highly integrated world.
  • Europe, The Crisis And Global Economy

    1. 1. “ Europe, the Crisis and the Global economy” George Alogoskoufis, Minister of Economy and Finance London School of Economics and Political Science 13 November 2008
    2. 2. <ul><li>Taking notice of a new global economy </li></ul><ul><li>Revolution in information technology </li></ul><ul><li>Globalisation of trade and finance </li></ul><ul><li>Progressive spread of democracy </li></ul>
    3. 3. <ul><li>The diversity of economies and societies </li></ul><ul><li>Cultural, educational, social, political and economic discrepancies remain significant. </li></ul>
    4. 4. <ul><li>The impact of the financial crisis </li></ul><ul><li>Severe deleveraging, </li></ul><ul><li>Malfunctioning credit markets, </li></ul><ul><li>Unprecedented write-downs in asset valuations, </li></ul><ul><li>Generalised risk aversion, </li></ul><ul><li>Threats to the stability of the banking sector. </li></ul>
    5. 5. <ul><li>Global economic governance to be revisited? </li></ul>
    6. 6. <ul><li>The capitalist system to be revisited? </li></ul>
    7. 7. <ul><li>The positive view on globalization </li></ul><ul><li>Economic benefits for everybody, </li></ul><ul><li>Poor countries and low income groups benefit in absolute terms, </li></ul><ul><li>Traditional societies benefit from the modernisation of institutions and the abandonment of traditional social and economic models. </li></ul>
    8. 8. <ul><li>The sceptical view on globalisation </li></ul><ul><li>Benefits are not shared equally among countries or citizens, </li></ul><ul><li>Clear losers in relative terms, and even in absolute terms, </li></ul><ul><li>Poor countries and low skilled workers in rich countries are left behind, </li></ul><ul><li>Social and economic dislocations associated with modernisation may lead to social unrest. </li></ul>
    9. 9. <ul><li>The importance of popular support for any economic or social model </li></ul>
    10. 10. <ul><li>Key questions to be addressed regarding the current crisis </li></ul>
    11. 11. <ul><li>Weaknesses in the global financial system </li></ul><ul><li>Serious regulatory and policy mistakes, </li></ul><ul><li>Underestimated economic risks in the pricing of financial assets, </li></ul><ul><li>Persisting asset bubbles, supported by liquidity abundance, </li></ul><ul><li>Increasing macroeconomic imbalances, </li></ul><ul><li>Inadequate integration of emerging economies to the system of global economic governance. </li></ul>
    12. 12. <ul><li>What makes this crisis unique </li></ul>
    13. 13. <ul><li>The need for appropriate policy responses </li></ul><ul><li>Coordinated monetary, fiscal and trade policies to deal with the risk of a prolonged global recession, </li></ul><ul><li>Social policies to cushion the impact on the poor and the unemployed, </li></ul><ul><li>Policies to restore confidence in the financial sector. </li></ul>
    14. 14. <ul><li>The need for a coordinated policy response </li></ul><ul><li>Without coordination, even the best policies are likely to prove “beggar my neighbour” policies, </li></ul><ul><li>Global problems require coordinated global solutions – in an open world trading and financial system, </li></ul><ul><li>No return to protectionism, </li></ul><ul><li>Monetary policies to be coordinated at a global level, </li></ul><ul><li>Fiscal policy coordination - a necessary prerequisite. </li></ul>
    15. 15. <ul><li>Europe’s response to the crisis </li></ul><ul><li>The response of the European Central Bank </li></ul><ul><li>Europe’s initial assessment of the crisis </li></ul><ul><li>Europe’s role in promoting a coordinated global response </li></ul>
    16. 16. <ul><li>Europe’s response to the crisis </li></ul><ul><li>Ecofin Council’s decisions on October 7 </li></ul><ul><ul><li>Common principles agreed: </li></ul></ul><ul><ul><ul><li>Support for financial institutions must be temporary </li></ul></ul></ul><ul><ul><ul><li>Member states to take full account of the interest of taxpayers </li></ul></ul></ul><ul><ul><ul><li>Shareholders to bear the consequences of any intervention </li></ul></ul></ul><ul><ul><ul><li>Governments to change management in troubled institutions </li></ul></ul></ul><ul><ul><ul><li>Management should not retain undue benefits. </li></ul></ul></ul><ul><ul><ul><li>Competitors should be protected through state aid rules </li></ul></ul></ul><ul><ul><ul><li>Negative spillover effects from country to country to be avoided. </li></ul></ul></ul>
    17. 17. <ul><li>Europe’s response to the crisis </li></ul><ul><li>Ecofin Council’s decisions (Oct 7) </li></ul><ul><ul><li>Main objective: Ensure adequate capitalisation and liquidity </li></ul></ul><ul><ul><li>Increased maximum amount of guaranteed deposits to 50 thousand euros </li></ul></ul><ul><ul><li>EIB support of small and medium sized companies with 30bn euros </li></ul></ul>
    18. 18. <ul><li>Europe’s response to the crisis </li></ul><ul><li>Extraordinary meeting of EU leaders (Nov 7)‏ </li></ul><ul><ul><li>Additional common principles agreed: </li></ul></ul><ul><ul><ul><li>No financial institution, market segment and jurisdiction must escape proportionate and adequate regulation, </li></ul></ul></ul><ul><ul><ul><li>The new international financial system must be based on the principles of accountability and transparency </li></ul></ul></ul><ul><ul><ul><li>The new international financial system must allow risks to be assessed so as to prevent crises, </li></ul></ul></ul><ul><ul><ul><li>Give the IMF a central role in a more efficient financial architecture. </li></ul></ul></ul>
    19. 19. <ul><li>Growth rates in the EU and the euro area </li></ul>
    20. 20. <ul><li>More coordinated responses needed in: </li></ul><ul><li>Fiscal Policy </li></ul><ul><li>Structural Policy </li></ul><ul><li>Trade Policy </li></ul>
    21. 21. <ul><li>The Stability and Growth Pact </li></ul><ul><li>Euro area and the EU to maintain fiscal deficits below 3% of GDP and public debt no more than 60% of GDP. </li></ul>
    22. 22. <ul><li>The Stability and Growth Pact </li></ul><ul><li>Revision of the Pact in 2005 </li></ul><ul><ul><li>more flexible regarding the time available for the correction of excessive deficits, </li></ul></ul><ul><ul><li>more demanding regarding the attainment of fiscal balance </li></ul></ul>
    23. 23. <ul><li>The Stability and Growth Pact </li></ul><ul><li>ECOFIN Council’s new decision: more flexible application of the Pact in the current circumstances. </li></ul>
    24. 24. <ul><li>The Stability and Growth Pact </li></ul><ul><li>A number of countries have been, or are expected to be close to the 3% threshold. </li></ul>
    25. 25. <ul><li>The Stability and Growth Pact </li></ul><ul><li>Fiscal policy to be a heavily constrained instrument for countering the contractionary forces that have been unleashed by the financial crisis. </li></ul>
    26. 26. <ul><li>An ideal coordinated fiscal response would probably call for lower fiscal deficits in the US and the UK and higher fiscal deficits in the Euro Area. </li></ul>
    27. 27. <ul><li>The room for fiscal coordination at a European and global level is extremely limited. </li></ul>
    28. 28. <ul><li>The significance of the Lisbon agenda </li></ul>
    29. 29. <ul><li>The role of the European Social Model </li></ul>
    30. 30. <ul><li>The need to revive the Doha round on trade and development </li></ul>
    31. 31. <ul><li>The role of a coordinated measured fiscal stimulus package for the global economy </li></ul>
    32. 32. <ul><li>Structural reforms need to continue </li></ul>
    33. 33. <ul><li>An economic crisis seen not only </li></ul><ul><li>as a threat but also an opportunity. </li></ul>

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