deepening emu: ambition and realism · deepening emu: ambition and realism. klaus regling, esm...
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Deepening EMU: Ambition and RealismKlaus Regling, ESM Managing Director
Bruges, 14 November
Deepening EMU: Ambition and Realism
I. The comprehensive response to the euro crisis
II. The euro area economy today
III. Further steps to deepen EMU
1
Deepening EMU: Ambition and Realism
I. The comprehensive response to the euro crisis
2
Competitiveness is back, current account deficits disappeared
■ Thanks to the convergence in competitiveness, unsustainable external imbalances in the peripheryhave disappeared
Current account balance (% of GDP)
Source: EC European Economic Forecast – Autumn 2017
Nominal unit labour costs (2000=100)
3
90
100
110
120
130
140
150
-20
-15
-10
-5
0
5
10
15
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Public deficits continue to improve
Source: European Commission Economic Forecast – Autumn 2017
Selected comparative fiscal balances (% of GDP)Fiscal balance in programme countries (% of GDP)
4
*
* Actual figure for Ireland in 2010: -32.4%
-25
-20
-15
-10
-5
0
52007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-14
-12
-10
-8
-6
-4
-2
02007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Euro area USA Japan UK
The ESM, the euro area sovereign rescue fund
ESM is a rescue fund for sovereigns that have lost market access (or risk losing market access)
Before the crisis: no lender of last resort for sovereigns in the EMU Total lending capacity (EFSF and ESM) €700 billion Five programme countries, four success cases €273 billion disbursed since 2011 Strict conditionality. Programme countries are reform champions. ESM has largest paid-in capital of any International Financial Institution Funding via markets (unlike IMF) Favourable lending conditions because of strong credit rating, backed by
shareholders
5
Deepening EMU: Ambition and Realism
II. The euro area economy today
6
Per capita growth is in line with the U.S. again
7
Annual GDP growth (%) GDP per capita growth (%)
Source: EC European Economic Forecast – Autumn 2017, AMECO
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Euro area US Japan
-6
-5
-4
-3
-2
-1
0
1
2
3
4
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Euro area US Japan
Gini coefficient(0 = perfect equality; 100 = maximal inequality)
Source: Eurostat, World Bank
8
Income distribution much better than in the U.S.
Source: EU-SILC survey for EU countries and OECD statistics for the US.
3
4
5
6
7
8
9
1995 2000 2005 2010 2015
After-tax disposable income of top quintile share to bottom
quintile share, US and selected European countries
25
27
29
31
33
35
37
39
41
43
2007 2008 2009 2010 2011 2012 2013 2014 2015
US Germany France Italy
Labour markets in Europe better than recognised
9
Percent (left chart)Cumulative change in percentage point (right chart)Age group: 15+ for euro area, 16+ for USLatest observations: Q1 2017 for euro area, Q2 2017 for USSource: Eurostat and BLS
Unemployment and employment rate in euro area and US since 2000
Employment rateUnemployment rate
0
2
4
6
8
10
12
14
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
EA US
-8
-6
-4
-2
0
2
4
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
EA US
European banks are catching up with the US
Tier 1 Ratio. Source: Standard & Poor’s (SNL Financial), banks’ annual reports, ESM calculations
Return on Equity. Source: Standard and Poor’s (SNL Financial), banks’ annual reports, ESM calculations
Capital ratios have continued to increase ... … but profitability is still low
10
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Q2
0%
2%
4%
6%
8%
10%
12%
14%
16%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Q2
Non-Performing Loans are gradually coming down…
Source: Standard & Poor’s (SNL Financial), banks’ annual reports, ESM calculations
… while provisions cover more than half
11
0
200
400
600
800
1 000
1 200
1 400
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Q2
0%
10%
20%
30%
40%
50%
60%
70%
EURbn
Gross NPLs (LHS) Reserves on NPLs (LHS) NPL Coverage ratio (RHS)
Risk sharing is underdeveloped in the EU and euro area
12
Percentage of shock smoothed by different channels
Source: IMF Staff Discussion Note “Towards a Fiscal Union for the Euro Area”
Economic risk sharing in euro area is lagging behind US
-10
0
10
20
30
40
50
60
70
80
90
EU EMU Canada US Germany
Fiscal policy Private markets Credit market
Financial integration remains well below pre-crisis levels
13
Note: The price-based indicator aggregates ten measures covering the main market segments such as money, bonds, equities and banking. The input series relate to price dispersion in EA countries. The quantity-based indicator aggregates five measures, covering intra-EA cross border holdings expressed as a % of EA total holdings. Both indicators are bounded between zero (full fragmentation) and one (full integration). Increases in the indicators signal higher financial integration. Source: ECB
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Quantity-based
Price-based
ECB indicators of financial integration in euro area
Deepening EMU: Ambition and Realism
III. Further steps to deepen EMU
14
How to strengthen the monetary union further?
Financial- Complete Banking Union: Backstop SRF, European Deposit Insurance- Capital Markets Union
FiscalWhat we don’t need:- Larger transfers- A special facility for symmetric shocksWhat we do need:- Simplify the fiscal rules- Facility for asymmetric shocks and macroeconomic stabilistion- Make sovereign debt restructurings more predictable
Institutional- European Finance Minister- European Monetary Fund
15
Media enquiries
16
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stability-mechanism
Wolfgang ProisslHead of Communication / Chief Spokesperson Phone: +352 260 962 230Mobile: +352 621 239 [email protected]
Luis Rego Deputy Spokesperson Phone: +352 260 962 235Mobile: +352 621 136 [email protected]
Douwe MiedemaFinancial Press SpokespersonPhone: +352 260 962 236Mobile: +352 621 562 [email protected]