Why further eurozone integration could hurt Europe’s competitiveness 1.

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Presentation transcript:

Why further eurozone integration could hurt Europe’s competitiveness 1

Financial crisis Debt crisis Bank crisis Competitiveness crisis Political crisis Europe’s four crises 2

The role of the euro The crisis started in the US but......the euro locked it in: – One-size-fits-all interest rates – Perverse incentives – Exposed tremendous imbalances – Political stalemate 3

Debt levels in the eurozone (% GDP) 4

Debt crisis: Financing needs PIIGS (€bn) 5

Bank crisis: Size of banks relative to GDP 6

Banking crisis: The reliability on ECB cash 7

Bank crisis / debt crisis: Net Balance within Eurosystem / Target [€bn] 8

Competitiveness: Real unit labour cost trends selected euro members (1999=100) 9

Competitiveness: Internal devaluation 10

Competitiveness: Unemployment levels (%) 11

Global competitiveness 12

Global competitiveness 13

Is fiscal / banking union the answer? “Inexorable logic” of the euro? Joint back stop for banks (deposit guarantee scheme / resolution fund) Fiscal distribution (eurobonds / transfers) 14

1. Can Germany afford it? Superman: "Easy, Miss, I've got you." Lois Lane: "You...you've got me, who's got you?" 15

Germany’s demographic trends 16

2. How to avoid moral hazard in a fiscal / banking union? Will it be possible to incentivise reforms in a fully fledged fiscal / banking union? How to avoid déjà vu? Berlin’s answer: strict central controls 17

Political crisis: 17 national democracies 17 national parliaments Electoral cycles Constitutional limitations Public opinion No demos = Massive risk of political backlash 18

Support for a transferunion? Sources: Eurobarometer/ZDF 19

Support for central fiscal controls? 20

What alternatives? Muddle through: Cash for austerity Transfer-union / bank-union: Who’ll be lender of last resort? Political and economic price? Euro break-up: Greece or more countries? 21