1. Europe: the uneven recovery* Leszek Balcerowicz Warsaw School of Economics Visiting fellow at The Hoover Institution Hoover Presentation, October 14, 20011 * in preparing this presentation I was assisted by Aleksander Łaszek

2. Plan of the Presentation 1.Convergence-divergence in Europe, 1994-2007 2.The boom years, 2003-2007 3.The slowdown (recession), 2008-2009 4.The recovery, 2010-2011 5.Some final observations Two groups of countries considered: Developed Europe (DE) Emerging Europe (EE)

3. 1. Convergence - divergence in Europe, 1994-2007

4. 4 Figure 1. GDP growth in Europe: 1994-2007, 2008-2009, 2010-2011

5. Figure 2. Economic growth in Europe,1994-2007

6. 2. The boom years, 2003-2007

7. Figure 3. GDP growth, 2003-2007

8. Table 1. Public spending /GDP Source: IMF WEO IX 2011

9. Table 2. Fiscal deficit (surplus)/GDP Source: IMF WEO IX 2011

10. Table 3. Public debt /GDP Source: IMF WEO IX 2011

11. Table 4. Current account deficit (surplus)/GDP Source: IMF WEO IX 2011

12. Table 5. Domestic credit to the private sector /GDP Source: WB WDI online

13. Figure 4. Unit Labor Costs in Manufacturing

14. 3. The slowdown (recession), 2008-2009

15. Figure 5. GDP growth in Europe, 2008-2009

16. 4. The recovery, 2010-2011

17. Figure 6. GDP growth in Europe 2008-2009 and 2010-2011

18. Figure 7. Unemployment in Europe 2008-2009 and 2010-2011

19. Figure 8. Inflation in Europe 2008-2009 and 2010-2011

20. Figure 9. Harmonized long-term interest rates, Sept. 2009, 2010 and 2011

21. Figure 10. Unit Labour Costs in Manufacturing

22. Figure 11. GDP growth: PIIGS vs. BLLE (Bulgaria, Lithuania, Latvia, Estonia)

23. Figure 12. ULC in Manufacturing: Greece, Italy and Spain* vs. BLLE

24. Figure 13. Public debt: PIIGS vs. BLLE

25. Figure 14. Fiscal deficit: PIIGS vs. BLLE

26. Figure 15. Public spending: PIIGS vs. BLLE

27. Figure 16. Current account: PIIGS vs. BLLE

28. 5. Some final observations

29. 1.Large variation in both DE and EE regarding all key aspects of the economic performance: Europe defies easy generalizations! 2.Most countries (both DE and EE) which experienced growth problems during 2008- 2011 registered huge fiscal and/or private sector’s credit booms, as well as large increases in ULC in manufacturing, during 2000-2007

30. 3. The recession 2008-2009 was accompanied by the increases in fiscal deficits. However, the size of these increase was not strictly related to the magnitude of the recession. 4. The unemployment in DE in 2008-2011, displayed very different dynamics, which was not strictly related to that of GDP 5. Despite recession there was no sign of deflation and recovery has been accompanied by the accerelation of inflation in DE (not so much in EE)

31. 6. BLLE have on average adjusted much better than PIIGS. Within PIIGS Ireland and Spain have performed so far much better than Greece and Portugal. 7. The example of BLLE and Ireland shows that countries can adjust via internal devaluation even after huge shocks.