Download - Michael Landesmann landesmann @wiiw.ac.at
Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute for International Economic Studies
www.wiiw.ac.at
Challenges of Real Convergence
Conference on: Ten Years of the Euro – Inspirations for
the Czech Republic
Prague, November 25, 2008
Michael Landesmann [email protected]
wiiw
2
Topics
Real convergence outside and within the EMU: some
general remarks Real convergence of the NMS: different patterns of
‚fixers‘ and ‚flexers‘ What makes NMS different from Spain and Portugal? The issue of monetary instability and financial
architecture – lessons from the current crisis
wiiw
3
Topics
Real convergence outside and within the EMU: some
general remarks:
- advantages outside: exchange rates may remove mis-
alignments in case of shocks; otherwise all burdens fall on wage
and (more generally) labour market flexibility
- advantages inside: mainly escape from currency mismatch
problems in case of contagion; ‚real interest rate effect‘ can lead
to falling savings rate, asset bubbles.
wiiw
4
Source: Eurostat.
GDP per head, real growth annual averages 1993-2000 and 2001-2007, in percent EU-27 countries
0
1
2
3
4
5
6
7
8
9
EU
-27
EU
-15
Au
stri
aB
elg
ium
Den
mar
kF
inla
nd
Fra
nce
Ger
man
yIr
elan
dL
uxe
mb
ou
rgN
eth
erla
nd
sS
wed
enU
nit
ed K
ing
do
m
Gre
ece
Ital
yP
ort
ug
alS
pai
n
Bu
lgar
iaC
ypru
sC
zech
Rep
ub
licE
sto
nia
Hu
ng
ary
Lat
via
Lit
hu
ania
Mal
taP
ola
nd
Ro
man
iaS
lova
k R
epu
blic
Slo
ven
ia
EU
-27
EU
-15
Au
stri
aB
elg
ium
Den
mar
kF
inla
nd
Fra
nce
Ger
man
yIr
elan
dL
uxe
mb
ou
rgN
eth
erla
nd
sS
wed
enU
nit
ed K
ing
do
m
Gre
ece
Ital
yP
ort
ug
alS
pai
n
Bu
lgar
iaC
ypru
sC
zech
Rep
ub
licE
sto
nia
Hu
ng
ary
Lat
via
Lit
hu
ania
Mal
taP
ola
nd
Ro
man
iaS
lova
k R
epu
blic
Slo
ven
ia
1993-2000 2001-2007
wiiw
5
Topics
Real convergence of the NMS: different patterns of
‚fixers‘ and ‚flexers‘
- fixers: lower risk premium on foreign borrowing; higher current
account deficits, more private sector debt, more fear of currency
mismatch in case of contagion; more serious testing of exchange rate
regime in current crisis; more liquidity crunch in period of crisis?
- flexers: higher inflation rates, lower current account deficits,
exchange rate reacted to financial market crisis; formerly appreciation
pressures
wiiw
6
GDP growth by country
0
2
4
6
8
10
12
BG CZ EE HU LV LT PL RO SK SI
2000 2001 2002 2003 2004 2005 2006 2007
GDP growth rates in %
Source: wiiw annual database
wiiw
7
-10
-5
0
5
Czech Republic Hungary Poland Slovak Republic Slovenia
1995 1996 1997 1998 1999 2000 20012002 2003 2004 2005 2006 2007
Current account in % of GDP, 1995-2007
-25-20-15-10-505
Estonia Latvia Lithuania
1995 1996 1997 1998 1999 2000 20012002 2003 2004 2005 2006 2007
wiiw
8
-10
0
10
20
30
40
50
60
Jän.00Jul.00Jän.01Jul.01Jän.02Jul.02Jän.03Jul.03Jän.04Jul.04Jän.05Jul.05Jän.06Jul.06Jän.07Jul.07
CZ HU PL SK SI BG RO
Consumer prices, 2000-2007(Month in the previous year = 100)
Source: wiiw-Database
wiiw
9
Nominal exchange rates, 1998-2007 EUR per NCU, 1998=100
0
20
40
60
80
100
120
140
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
CZ HU PL SK SI BG RO
Ascending line indicates appreciation.
Source: wiiw database incorporating national statistics.
wiiw
10
Real exchange rates, 1996-2007 EUR per NCU (PPI deflated NCU + EUR), 1996=100
100
120
140
160
180
200
220
240
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
CZ HU PL SK SI BG RO
Note: Values over 100 indicate appreciation relative to 1996=100.
Source: wiiw database incorporating national statistics.
wiiw
11
Average gross monthly wages, total, EUR, 1995=100
50
100
150
200
250
300
350
400
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
CZ HU PL SK SI BG RO AT
Source: wiiw database incorporating national statistics.
wiiw
12
10
20
30
40
50
60
70
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
CZ HU PL SK SI BG RO
Unit labour costs(Austria=100)
Source: wiiw-Database
wiiw
14
General government deficit, 1998-2006in % of GDP
-14
-12
-10
-8
-6
-4
-2
0
1998 1999 2000 2001 2002 2003 2004 2005 2006
HU CZ PL SK SI
Source: Eurostat.
wiiw
16
Topics
A tale of two countries (Spain, Portugal) What makes NMS different from Spain and Portugal?
- NMS: longer experimentation of monetary and exchange rate
alignment with Eur-zone; much tighter financial market
integration; some economies with sophisticated and robust
export structures (more like Spain or even Ireland); problems with
fiscal policy – political business cycles
- Lessons: beware of real interest effect, household savings,
asset price bubbles; real exchange rate and current accounts
(hence ‚competitiveness‘) issues do not disappear
wiiw
19
Topics
What do we learn from the current crisis? The issue of
monetary instability and financial architecture
- Differences in the vulnerability across economies: fixers vs.
flexers, those with high/low foreign debt/private debt; fiscal
recklessness and political business cycles
- Contagion transmission through foreign banks; not sufficient
condition for stability in credit markets; strict regulation important
- On balance: quick transition to full EMU membership desirable