H.-W. Sinn European Law and Life Culture 第四單元： The European Competitveness Crisis Lecturer: Hans-Werner Sinn, Ifo Institute for Economic Research Unless noted, the course materials are licensed under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Taiwan (CC BY-NC-SA 3.0)Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Taiwan 1

H.-W. Sinn Bail-out measures Unemployment and growth Loss of competitiveness Development of trade balances Necessary and actual devaluation

H.-W. Sinn Unemployment and growth

H.-W. Sinn EU % % Source: Forecast by the Ifo Institute, June Real GDP inthe EU15 countries Economic growth 2013

H.-W. Sinn % Quelle: Eurostat, August Unemployment rates in Europe Spain Greece Ireland Germany Portugal Italy France

H.-W. Sinn % Quelle: Eurostat, August Unemployment rates in Europe Germany Taiwan China Indonesia Japan

H.-W. Sinn Germany Ireland Spain France Italy Cyprus Portugal Greece % Japan Youth unemployment (< 25 years) Source: Eurostat.

H.-W. Sinn Loss of competitiveness

H.-W. Sinn Germany Greece Portugal Italy Public and private consumption % of NNI 11 Source: Eurostat

H.-W. Sinn Development of trade balances

H.-W. Sinn Source: Eurostat, Datastream. Current account balances Billion euros Germany GIPSIC 12 Source: Eurostat, September The euro tango!

H.-W. Sinn Are we already on the right track?

H.-W. Sinn Mill. euros Imports Exports Spain 2013 Source: Eurostat

H.-W. Sinn Import Export billion euros Greece 2013 Sourcle: Eurostat

H.-W. Sinn Necessary and actual devaluation

H.-W. Sinn 108 Slovenia 82 Slovakia 67 Greece 56 Spain 51 Cyprus 47 Portugal 47 Ireland 40 Italy 39 Luxembourg 37 Netherlands 26 Eurozone 25 Belgium 25 France 22 Finland 17 Austria 9 Germany Price development % Source: Eurostat, calculations by the Ifo Institute. May 2013 Trade-weighted appreciation Trade-weighted appreciation vis-à-vis other euro countries: GIPSIC:+ 30% Germany:- 22%

H.-W. Sinn How much realignment has taken place and how much is necessary?

H.-W. Sinn Greece is 61% more expensive than Turkey, Portugal is 43% more expensive. Devaluation required: 38% and 30% respectively

H.-W. Sinn Greece Italy Ireland Portugal Spain France Germany Q3/2008=100 Real exchange rates (GDP deflator relative to rest of euro area) & necessary realignment after Goldman Sachs Long run target Italy Lehman 5,5% inflation? 71% price increase? 42% asset loss? Why Ireland? Source: Eurostat

H.-W. Sinn Bail-out measures

H.-W. Sinn Help from the printing press

H.-W. Sinn ECB collateral requirements Date Standard Until 24 October 2008A- From 25 October 2008BBB- 3 May 2010 – 7 July 2011Rating requirement waived for government bonds of Greece, Ireland and Portugal ELA credit Non-traded ABS created by commercial banks Company credit The printing press was underbidding the capital market.

H.-W. Sinn Billion euros Finland, Germany, Luxembourg, and the Netherlands (left-hand scale) GIPSIC (right-hand scale) Billion euros Note: Germany, the Netherlands, Italy and Spain: end of May; other countries: end of April May bn May bn Target balances claims and liabilities Source: Eurostat

H.-W. Sinn Target liabilities** (GIPSIC) Purchases of GIPSIC government bonds by the central banks of the other euro countries* Greece (euro countries, EFSF, IMF) Ireland (EFSM, EFSF, IMF) Portugal (EFSM, EFSF, IMF) Claims related to the under-proportionate issuance of banknotes (June 2013) (67%) ECB (33%) Parliaments Spain (ESM) Lending funds to euro countries (Billion euros) Paid-out to date * Data updated: 27 September 2013 ** Data as of end of June April 2013 (Greece, Ireland, Portugal and Cyprus); Spain and Italy: end of August. 5 Cyprus (ESM)

H.-W. Sinn The EZB is predetermining policy and curbing reform.

H.-W. Sinn 2. Target The euro trap 3. Government bond purchases by ECB 6. Banking union 4. EFSF/ESM 1. Credit bubble 5. OMT

H.-W. Sinn Three options 1. Deflation in the periphery 3. Exit 2. Inflation in the core Violation of the central bank’s mandate Mass unemployment Bank Run à la Cyprus

H.-W. Sinn Potential international financial aid Greece (185% of 2012 GDP) Spain Italy 358 bn. euro bn. euro bn. euro bn. euro

H.-W. Sinn Conclusions 1. Financial crisis is only the tip of the iceberg 4. The likelihood of exits by large countries is growing 2. Overpriced economies must devalue 3. Germany must inflate

H.-W. Sinn 頁碼作品 版權 圖示 來源 / 作者 1-35 Wikimedia commons / Blurpeace, Sreejithk 本作品屬公共領域之著作。瀏覽日期： 2013/10/04 。 4 Ifo institute 依據著作權法第 46 、 50 、 50 、 52 、 65 條合理使用。 5 Eurostat 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/10/04 。 6 Eurostat 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/10/04 。 版權聲明 32

H.-W. Sinn 頁碼作品 版權 圖示 來源 / 作者 7 Eurostat (age<25) 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/10/04 。 9 Eurostat (TIME: ) 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/11/07 。 11 Eurostat 038&plugin=1 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/10/05 。 13 Eurostat (TIME:2002Q1-2013Q2,, INDIC_NA: Exports of goods and services & Imports of goods and services, Spain) 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/11/07 。 33

H.-W. Sinn 頁碼作品 版權 圖示 來源 / 作者 14 Eurostat (TIME:2002Q1-2013Q2,, INDIC_NA: Exports of goods and services & Imports of goods and services, Greece) 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/11/07 。 16 Eurostat (TIME:2008) 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/11/07 。 19 Eurostat (TIME:1995Q1-2013Q2) 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/11/07 。 23 Eurostat (Partner: Euro area, p.s. GIPSIC 是 Greece, Ireland, Portugal, Cyprus, Spain and Italy) 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/11/08 。 24 Ifo Institute 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/11/08 。 34

H.-W. Sinn 頁碼作品 版權 圖示 來源 / 作者 28 Wikimedia commons / Lars Aronsson 本作品以創用 CC 「相同方式分享」 1.0 版授權釋作。瀏覽日期： 2013/10/06 。創用 CC 「相同方式分享」 1.0 版 28 Wikimedia commons / unknown 本作品屬公共領域之著作。瀏覽日期： 2013/10/06 。 28 Hanser Verlag / Hans-Werner Sinn 著， 2012 ，《 Die Target-Falle – Gefahren für unser Geld und unsere Kinder 》， Germany ： Hanser Verlag 。 依據著作權法第 46 、 50 、 52 、 65 條合理使用。瀏覽日期： 2013/10/06 。