current challenges with emu economic differences, euro area enlargement and the revised stability...
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Current challenges with EMUEconomic differences,
euro area enlargement and the revised Stability and Growth pact
Dr. Jürgen KrögerThe 12th Dubrovnik
Economic ConferenceDubrovnik, June 28 – July 1 2006
CUMULATED GDP GROWTH IN THE EURO AREATotal period : 1999 – 2006
17
301210
33
10
23
50
16
1417
CUMULATED HICP GROWTH IN THE EURO AREATotal period : 1999 – 2006
15
2524
19
25
12
13
27
14
2116
Growth rate ( in % )
CONTRIBUTIONS TO POTENTIAL GROWTHTotal period - 1999-2006
-5
0
5
10
15
20
25
BE DE EL ES FR IE IT LU NL AT PT FI
Labour (persons) Capital Accumulation
Total Factor Productivity
-2
0
2
4
6
8
1998 2000 2002 2004 2006
DE
ES
FR
IT
Source: EU Commission, AMECO database
CONTRIBUTION TO THE INCREASE OF GDP OF DOMESTIC DEMAND EXCLUDING STOCKS
CONTRIBUTION TO THE INCREASE OF GDPExports of goods and services including intra-EU trade
-2
0
2
4
1998 2000 2002 2004 2006
DE
ES
FR
IT
Source: EU Commission, AMECO database
(Total period : 1999 – 2006, % of GDP of preceding year)
Source: EU Commission, AMECO database
GDP
GROWTH
Contribution to the increase of GDP of
Domestic
Demand
Exports of goods and services
Imports of goods and services
Germany 10 5 18 -12
Spain 29 38 9 -17
France 17 20 7 -10
Italy 10 12 2 -4
REAL SHORT-TERM INTEREST RATES
Growth rate ( in % )
BE
DE
ELES
FR
IE
IT
NL
AT
PT
FI
-2
-1
0
1
2
Average 2002 – 2005, 3 Month rate
Deflator of private consumption
Source: EU Commission, AMECO database
INTRA-EURO AREA REAL EFFECTIVE
EXCHANGE RATES
85
90
95
100
105
110
115
120
1998 1999 2000 2001 2002 2003 2004 2005 2006
Index 1998 = 100, ULC Total
Portugal
Germany
Netherlands
Spain
Italy
Bel / Lux
IrelandFinland
France
Austria
Greece
SPAINMCI AND ITS CONTRIBUTORSInverted scale
-2
-1
0
1
2
1999 2000 2001 2002 2003 2004 2005 2006
REER-34
RIR
MCI
Source: Commission services
Loosening
Tightening
SPAIN
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: EU Commission, AMECO database
Balance on current transactions with the rest of the world
(in % of GDP)
90
100
110
120
130
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
SPAIN COMPETITIVENESS(ULC Total Economy, Index 1988 = 100)
Real Effective Exchange Rates vs (rest of) EUR12
Current account balance
Growth rate ( in % )
PTEL
ES
IE AT IT
FRDE
BEFI
NL
-75
-50
-25
0
25
50
75 Cumulative 1999 – 2006, % of GDP
Source: EU Commission, AMECO database
CURRENT ACCOUNT BALANCE
Stylized facts of successful real catching-up
Phase 1 : UpswingInitially real expected rate of upturn has to be highIn order to avoid overheating monetary policy has to be used, not fiscal policy
Tight money in the upswing is necessary to Contain inflation Establish demand supply equilibrium Help establishing inter temporal equilibrium
Appreciation reduces import costsCurrent account deficit, covered by FDI, is a counterpart to fill the supply-demand gap.
Stylized facts of successful real catching-up
Phase 2 : Consolidation Higher investment increases the capital stock :
Potential output rises Domestic supply approaches domestic demand The marginal real rate of return shrinks to the level of
partner countries Monetary policy is gradually easing Net exports rising as exchange rate depreciates Current account moving towards a sustainable level