Download - IMF Euro Presentation April2012
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1995 or the earliest date
Convergence
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2005
Convergence
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2008
Convergence
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2010
Convergence
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2000 2002 2004 2006 2008 2010 2012 2014 2016
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90
120
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180Euro area maximum
Euro area minimum
General Government Gross Debt(Percent of GDP)
Projections
Debt
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2000 2002 2004 2006 2008 2010 2012 2014 2016
0
30
60
90
120
150
180Euro area maximum
Euro area minimum
General Government Gross Debt(Percent of GDP)
Projections
Debt
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-15
-10
-5
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15
20
-50 -40 -30 -20 -10 0 10 20 30 40ChangeinREER-ULCr
elativetoe
uroarea(1999-20
10)
Export growth over euro area (1999-2010)
Depre
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More
export
s
App
reciati
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Lessexpo
rts
Competitiveness
Relative Exchange Rate and Export Performance-20
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-50 -40 -30 -20 -10 0 10 20 30 40ChangeinREER-ULCr
elativetoe
uroarea(1999-20
10)
Export growth over euro area (1999-2010)
Depre
ciatio
n
More
export
s
Appre
ciatio
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Lessexp
orts
Competitiveness
Relative Exchange Rate and Export Performance-20
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GREECE
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In Greece, debt and deficits climbed to precipitous levels.The massive spending increases behind this drove up wages and prices, badly
undermining competitiveness, and setting the stage for the crisis.
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150
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-10
-5
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20
25
1990 1996 2002 2008
Gen. Gov. Fiscal Balances(percent of GDP)
Primary balance (lhs)
Gross debt (rhs)
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40
45
50
2000 2003 2006 2009
Revenue & Primary Spending(percent of GDP)
Revenue
Prim. Exp.
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1. Design of the SBA
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Fiscal adjustment was expected to boost market confidenceand restore financing
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300
0
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20
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40
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60
70
80
2010 2011 2012 2013 2014 2015
Finance(basis points)
Market borrowing
Spreads aboveGerman bund
0
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40
60
80
100
120
140
160
-15
-10
-5
0
5
10
2006 2009 2012 2015
Fiscal Balances(percent of GDP)
Fiscal deficit
Debt
Program
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Structural reforms were designed to improvecompetitiveness and trigger an export-led recovery.
(which would help reduce the impact of fiscal adjustment).
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2006 2009 2012 2015
Contributions to GDP(percent)
Net exports
Domestic demand
Program
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3
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5
2006 2009 2012 2015
GDP deflator(percent change)
2009-AIV
SBA
Program
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2. SBA IMPLEMENTATIONExperience and outcomes
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Competitiveness problems have proven less tractable, and therecession has proven deeper than expected.
-1
0
1
2
3
4
5
6
2006 2008 2010
GDP Deflator(average, in percent)
SBA Request 5th Review
Program
-8
-6
-4
-2
0
2
4
6
2006 2009
GDP Growth(in percent)
SBA Request 5th Review
ProgramDatarevisions
Datarevisions
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Significant fiscal adjustment, but soaring debt and spreads
-12
-8
-4
0
4
8
2009 2011 2013 2015
Primary Deficit(percent of GDP)
SBA Request
5th Review
Program
0
10
20
30
40
50
Dec'07 Dec'08 Dec'09 Dec'10 Dec'11
GGB Spreads over Bunds(percent)
2-Year
10-Year
Program
100
120
140
160
180
200
2009 2010 2011 2012 2013 2014 2015
Gross Public Debt(percent of GDP)
SBA
5th review
Program
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3. The new EFF programPolicy Adaptation
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The new program places emphasis on directly securing fastercompetitiveness improvements to bring forward the recovery
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100
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120
130
90
100
110
120
130
2000 2004 2008 2012
ULC(Index, 2000=100)
ULC (EFF)
ULC- Euro area
NewProgram
-2
0
2
4
6
-2
0
2
4
6
2005 2008 2011 2014
GDP deflator(percent change)
SBA
EFF
Euro area
NewProgram
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Fiscal adjustment has been slowed down and debt relief hasplaced public debt on a better (but still risky) trajectory
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120
140
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180
200
2007 2011 2015 2019
Debt
(percent of GDP)
SBA-5th review
EFF baseline
EFF alternativescenario
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-10
-5
0
5
10
-15
-10
-5
0
5
10
2009 2012 2015
Primary fiscal deficit(percent of GDP)
SBA request
EFF baseline
SBA-5th review
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Portugal
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Problem 1: Unsustainable fiscal policies
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32
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46
48
50
In percent of GDP
In percent of potential GDP
Primary Government Spending(ratio to GDP)
0
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40
60
80
100
120
140
160
0
20
40
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80
100
120
140
160
General Government Debt, 2010
(ratio to GDP)
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Problem 2: High corporate, household andfinancial sector indebtedness
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40
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160
180
Greece
Italy
EA
Spain
Portugal
Non-Financial Corporate Debt to GDP, 2010(Percent)
0
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40
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80
100
120
140
160
180
Greece
Italy
EA
Spain
Portugal
Household Debt to GDP, 2010(Percent)
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Problem 3: Loss of competitiveness, resulting inlow-growth and a high current account deficit
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-2
0
2
4
6
Wages
Productivity 1/
ULC
Unit Labor Cost Change (TotalEconomy), 2001-08(percent change)
-4
-2
0
2
4
6
Wages
Productivity 1/
ULC
Unit Labor Cost Change(Manufacturing), 2000-08(percent change)
1/ Negative = increase in labor productivity.
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Pillar 1: Fiscal Solvency
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-6
-4
-2
0
2
4
6Primary Balance (percent of GDP)
Primary Structural Balance (percent ofpotential GDP)
GRC(2010)
IRL(2009)
PRT(2011)
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5
10
15
20
25
0 5 10 15
Adjustmentover5years
Adjustment over 2 years
Magnitude and Timing of Fiscal Adjustment in Euro Area(change in structural primary balance as percent of GDP)1
Back Loaded
1 Since structural adjustment started -- between 2009 and 2012depending on the country (2011 for Portugal).
Front Loaded
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Pillar 2: Enhancing Growth andCompetitiveness
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5 OECD Employment Protection Index,2008
Source: OECD. 2009 data for Portugal and France.
-3
-2
-1
0
1
2
3
4
5
6
7
Labor Cost Index2008 =100, y/y % change
Annual average
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11-months into the program, some encouragingsigns
Greece
Ireland
PortugalSpain
Italy
EA
-14
-12
-10
-8
-6
-4
-2
0-4 -2 0 2 4 6 8
C
ummulativeChangeinOutput
(inpercent)
Change in Current Account Balance(percentage points of GDP)
Output Loss and External Adjustment,2007-2011
-7.3
-4.2
1.2 0.7
0.60.4
-0.8
-0.5
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
In bns of euros In percent of GDP
Transfers, balance
Income, balanceImportsExportsCurrent account
Change in the current account: 2011-2010
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So far so good, but significant challenges ahead
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70
80
90
100
110
120
130
140
Alternative Scenarios(percent of GDP)
Deeper recession (2012-14)
Potential growth at 1 percent
Extreme scenario: potential growth at 1percent (nominal primary expenditureunchanged compared to baseline)
60
70
80
90
100
110
120
130
140
Program Request
Third Review
Public Debt(percent of GDP)
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Pre-Program Policy Response was Substantialbut
Bank Funding Runs Force Program in late 2010
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60
70
80
90
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30
40
50
60
70
80
90
Aug-10 Oct-10 Dec-10
Debt securities, net repayment
Deposits, private sector (net outflows)
ECB liquidity support
Bank Funding Outflows(Euro billions)
55.7
40.2
0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
2008 2009 2010 2011
Bank support costs
Deficits and other debt
Government Debt, Net(Percent of GDP)
High Private Debts Increase the Risk
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High Private Debts Increase the Riskof a Pernicious Downward Cycle
Real economyweak output/incomegrowth
Fiscalhigher deficit &
further tightening
HH deleveraging leads to higher saving
and weak demand
Lower HH DI raises debt DI ratio
Bankshigher loan losses
Property markethouse price declines
fiscal tightening
reduces DI
HouseholdsHigh debt to DI ratio
Banks restrict lending
Further weakens
HH balance sheet
Banks restrict
lending
Lower collateral values
DI= disposable income
HH = households
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Bank RecapitalizationCredible, Cost Mitigated
0
10
20
30
40
50
Losses and
Capital Needs
Existing
Capital
Capital
Injection
Required
Capital
Sources
Recapitalization (Billions of euros)
Loan LossForecast
(Blackrock)
Capital
for 6%Core Tier 1end 2013
Buffer for post
2013 losses
ExistingCapital
and
Provisions
Additional Capital
for Adverse Stress
Test Scenario
Deleveraging
Losses
Government16.5 billion
LMEs on Sub-debt
PrivateInvestments1 billion
Total 24 billion
Buffer5.3 billiono/w CoCo3 billion
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DeleveragingPhased, mostly Offshore Assets
100
110
120130
140
150
160
170
180
190
0
50
100
150
200
250
300
End 2010 2011 2012 2013 End 2013
Disposals
Net amortization
Impairments and other
Deleveraging, 2011-2013
Core
Assets
Non-core
Assets
Core
Assets
Non-core
(Euro billions) (Loan/Deposit %)
Loan to
Deposit Ratio
122.5%
180%
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