the impacts of the economic crisis on central-eastern europe perc conference brussels 26 march 2010...
TRANSCRIPT
The impacts of the economic crisis on Central-Eastern Europe
PERC conference
Brussels 26 March 2010
Béla Galgóczi
ETUI
2
Main framework conditions – March 2010
● Clear signs of an end of the recession and a moderate upturn in developed industrial economies (EU, US, Japan) but it is volatile and still mostly due to on-off crisis intervention measures
● The labour market situation is further on tense, unemployment is still growing, wages are under pressure
● At the same time stock markets are soaring due to abundance of liquidity (banks put their `easy money` into the stock market instead of the real economy – a new asset bubble is being blown)
● This has however a positive side effect on CEE – more risk taking means stabile markets, strengthening exchange rates, low risk premia and growing raw material prices
● Latvian risk premia (e.g CDS spreads) are lower than those of Greece
3
Main framework conditions – March 2010● The big fear is about debt levels accumulated through the
stimulus packages – what exit strategy?● The Greek crisis has again put the debt issue in focus ● Even if no immediate impact on CEE, the risk is there
(especially if the GR crisis escalates)● On the other hand CEE economies also perform better now, but
the social price is enormously high● Even if Latvia and Hungary are seen as good examples for
quick fiscal consolidation – it is clear that the therapy was harsher than necessary and the social price is huge (especially in Latvia – see later)
● Where is Europe in this situation ? – the way it tackles the GR crisis does not mean anything good for CEE!
● Many say now: GR has better chances with the IMF as it is softer than the EU
4
Main macroeconomic trends in Europe at light of available data
● GDP in 2009 - ● a lost decade for many countries – ● Growth scenarios – back to trend growth or the `scar of the
crisis` remains for long term (important for job prospects!)● GDP/employment/unemployment – huge differences
among countries – lessons for labour market policy● The fiscal situation (alarming for many countries - with a
prospect of prolonged recession)
5
Change in output, 2008Q1 to 2009Q2
-20
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
2
4
LT LV EE IE LU SI FI HU RO IT DE DK SE UK EU27
NL AT ES CZ SK BE PT FR MT GR CY PL
Data source: Eurostat.
%
6
A lost decade? When Was Current GDP first achieved
Source: Euostat Quarterly National Accounts. Notes: This Graph shows when the current level of seasonally adjusted real GDP per capita was first achieved. Current Period taken as Q2 2009, except Poland (Q1 2009) and Italy (Q3 2008) Data unavailable for AT, CY, FR, RO, GR and BG
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
DK PT IT IE ES UK EE HU SE BE FI LT LV LU DE NL SI CZ MT SK PL
7
Potential output and growth scenarios after the crisis
output
time
output
time
output
time
trend rate of output growth actual path of output
one-off output lo
ss
growing output losses
8
GDP, employment and unemployment rates, 2009Q2 (change compared to 2008Q2)
0,10
-20
-15
-10
-5
0
5
10
15
LT LV EE SI FI RO IE HU DK IT SE DE UK SK LU NL EU27
AT CZ ES BE PT FR MT CY GR PL
GDP percentage change employment: percentage point changes unemployment: percentage point changes
Source: Eurostat (2009) European Labour Force Survey and National Accounts. Age: 16-64. Note: incomplete data for BG.
9
Change in output and employment, 2008Q2-2009Q2
FRMT
CZ
UKSE
BEAT
EU 27
SKIT
CY
NL
PT
GR
PL
DK
HU
DE
LU
ROSI
FI
ESIE
LV
EE
LT
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2
emplo
ymen
t (%)
output (%)
Data source: Eurostat.
10
Government budget deficit/surplus (% GDP)
-16
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
EL IE RO UK MT LV ES HU PL FR LT EE PT IT SK EU27
CZ SI BE AT DE NL CY BG LU SE DK FI
2008 2009 2010
Data source: AMECO (2009 estimate, 2010 forecast).
11
Baltic states in focus
● The Baltic states were hit hardest by the crisis● A 20% GDP drop is dramatic and involves substantial
sacrifice from the population (as a result of unsustainable growth strategies in past)
● Crisis management focused on short term results and not on a future perspective
● No socially just distribution of the burdens● Severe conditions for fiscal tightening – to cut public
spending: Latvia 20% cut of public sector wages, 10% cut of pensions, social welfare schemes)
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Baltic states in focus
● At the same time, Latvia was anyway the second poorest EU country and had the lowest level of social spending
● Its GDP is back on the level of 1990!● Unemployment over 20% - highest in EU● Wage cuts among highest in EU● Working poor among highest in EU● Labour market spending among lowest in EU (under
0.5% of GDP)
13
Latvia’s GDP in prices of 2000 in % to the level in 1990
89,6
58,4
49,7 50 49,6 51,354,6
62,6 64,468,8
74,178,8
84,5
91,8
101,5
113,9
125,3
119,6
99,6
0
20
40
60
80
100
120
140
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
14
Economic downturn and increase in unemployment rates. Harmonized unemployment rates in selected EU countries, 2008-2009 (in %)
Source: Own elaboration based on EUROSTAT data
15
Year on Year Percentage Real Change in Wages and Salaries (Q2 2008 to Q2 2009)
-15
-10
-5
0
5
10
15
LT MT EE LV UK NL IT FR DK PL CZ LU SK EU27
CY HU EA16
BE DE AT RO GR PT ES SI BG
Source: Eurostat Labour Cost Index and Harmonized Index of Consumer Prices. Note: Seasonally adjusted change in real wages and salaries,2008Q2 to 2009Q2, except Netherlands, Luxembourg and Italy 2008Q1 to 2009Q1. (NACE rev2 sectors B-N). Data unavailable for IE, SE and FI
16
0
5
10
15
20
25
30
35
40
45
LT PT LU LV BG EE ES RO CY CZ GR UK DE EU27
SI BE HU IT SE SK AT FI FR PL IE NL MT DK
In work at risk of poverty – single parents
Data Source: Eurostat Survey of Income and Living Conditions. Notes: 2008 Figures except IE, IT, UK, and EU27
17
Active and passive expenditure on labour market policies and unemployment rates, 2007
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
EE RO LT CZ LV UK SI MT BG SK CY HU LU PL IT IE PT EU27
SE AT FR ES FI DE NL DK BE
0
2
4
6
8
10
12Labour market services active measures passive measures unemployment rate (right hand scale)
Source: Eurostat (2009) Labour Market Policy. Note: information for Greece is missing.
expe
nditu
re in
% o
f GD
P
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Where was Europe in this situation? – no visible strategy
● Europe was paralysed in regard to CEE NMS and EU neighbourhood countries, as well
● Europe in lack of proper institutions and resources to cope with a crisis of this magnitude
● Refusal of a crisis intervention fund for CEE countries was a negative message from the EU to CEE NMS and to the whole Eastern Europe (beyond the EU)
19
The role of the IFI-s in the region
EU – IMFWhile Europe sets on a wide range of public resources to
offset the effect of the crisis (stimulus packages, labour market schemes, more government deficit), countries in CEE in the deepest crisis need to apply brutal fiscal tightening
Europe and the world seem to abandon neo-liberal economic doctrine, but this is being applied in CEE as crisis management
receipee: cut spending at any price > this makes the downturn even more severe
Even so, it is true that the IMF showed certain flexibility
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Conclusions
● European response: not satisfactory and not properly co-ordinated
● The leading role in the region left to the IMF● The current situation perfectly illustrates the adverse
effects of an economic integration without social and political integration in the EU
● This is also a bad message to EU accession countries and countries with a future prospect of EU membership
● Weak social welfare systems in the CEE region are being further dismantled. Perversely the failed neo-liberal economic doctrine seems to be further strengthened in the new member states, while developed Western economies seem to leave it behind.
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Conclusions
● With the acute financial turbulences (e.g. exchange rates, capital extraction) over now /really over??/,
● Emphasis must be given to the employment impacts● Here the worse is still to come and employees in most
CEE /in SEE countries even more so/ are unprotected● More fiscal room and effective labour market policy is
needed● Decisive would be however the upturn in Western Europe
as this boosts CEE exports