1. Monetary Policy and Fiscal Soundness
Ludger Schuknecht
Director General „Economic and Fiscal Policy Strategy, International Economy and Finance”
Federal Ministry of Finance, Germany
57th Annual Conference of the Italian Economic Association Milan, 22nd October 2016

2. Triangle of Stability Fiscal Policy Real Eco-nomy Financial Markets
Stable Eurozone
Financial Markets

3. Public debt stabilised but at record highs
Public debt as a percentage of GDP
1999
2007
2009
2015
2017
Euro Area
70.4
64.9
78.3
92.9
91.1
Germany
60.0
63.5
72.4
71.2
65 ¾
France
60.2
64.4
79.0
95.8
97.0
Italy
109.6
99.8
112.5
132.7
131.8
Spain
60.9
35.5
52.7
99.2
99.6
Portugal
51.0
68.4
83.6
129.0
124.5
Greece
88.8
103.1
126.7
176.9
178.8
Ireland
46.7
23.9
61.8
93.8
86.6 UK
41.7
43.5
65.7
89.2
89.1
USA
58.9
64.0
86.0
105.9
107.5
Source: European Commission Spring Forecast (3 May 2016) for , Statistical Annex
Germany: Federal Statistical Office and BMF-Projection (April 2016) rd. to ¼ percentage points

4. Nominal deficits stabilised but persisting
Net lending/borrowing as a percentage of GDP
2007
2009
2015
2017
Euro Area
-0.6
-6.3
-2.1
-1.6
Germany
0.2
-3.2
0.7
0.0
France
-2.5
-7.2
-3.5
Italy
-1.5
-5.3
-2.6
-1.9
Spain
2.0
-11.0
-5.1
-3.1
Portugal
-3.0
-9.8
-4.4
-2.3
Greece
-6.7
-15.2
-1.8
Ireland
0.3
-13.8 UK
-10.8
-2.4
USA
-12.7
-4.0
Source: European Commission Spring Forecast (3 May 2016) for ; AMECO for
Germany: Federal Statistical Office and BMF-Projection (April 2016) rd. to ¼ percentage points

5. Social spending drives public expenditure
Public expenditure as a percentage of GDP
Total spending
Social spending
Euro Area
48.6
30.3
Germany
43.9
28.3
France
56.8
35.3
Italy
50.5
31.4
Spain
43.3
26.6
Portugal
48,3
27,1
Greece
55,3
28,7
Ireland
35,1
20,9 UK
43.2
26.3
USA
38.1
19.2
Korea
31.8
10.4
Source: EU Commission for EU countries (2015), OECD for USA and Korea (2014).

6. Demographic challenges
Old-age dependency ratio
(ratio of population 65+ per 100 population 15-64)
Projected changes in age-related spending 2013–40 in % of potential GDP
2010
2040
Korea
15.3
54.4
USA
19.4
36.2
China
11.1
39.6
Germany
31.3
55.8
France
26.4
45.6
Italy
31.2
63.1
Japan
36.0
63.8
Euro Area
27.6
49.4
Source: UN World Population Prospects: The 2015 Revision.
Euro Area: For 2010: Eurostat; For 2040: EPC Ageing Report 2015 – Underlying Assumptions and Projection Methodologies
Source: BIS, Annual Report 2013

7. Financial sector more resilient
Source: ECB, Consolidated Banking Data

8. Sovereign bonds on banks‘ balance sheets
Source: ECB, Statistical Data Warehouse

9. Non-performing loans weigh on banks
NPL as a percentage of total loans
Source: EBA Data Risk Dashboard, Q1/2016

10. Risk of “Fiscal Dominance”/”Moral Hazard” How to exit?
10 Year Government Bond Yields (%)
Source: Reuters,