Euro in the Soup: Three Possible Scenarios. CERGE, Prague July 11, 2012

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1 Euro in the Soup: Three Possible Scenarios CERGE, Prague July 11, 2012 Jan Mládek Shadow minister of finance, ČSSD Chairman of FONTES RERUM

2 Creation of the Eurozone is not the reason for the start of world financial and economic crises Three main reasons: 1. Ever growing inequality of incomes and wealth, beside destruction of social cohesion it is the reason for economic decline. 2. Financial Markets out of control 3. Overkilled outsoursing of manufacturing to China and elsewhere

Ever growing inequality of incomes and wealth, beside destruction of social cohesion

3 Globally there ís not idea what to do with current crises? There are printed money big way. However emplyoment is not created because of it. There are better ways how to make money, when the banks can refinance from central banks nearly for zero interest. Fiscal stitimulation would be desirable, but there is littel space for it!

There are better ways how to make money, when the banks can refinance from central

4 Public Debt in the year ,1 83, ,5 0 EU Eurozone Czech Rep. Germany Italy Greece Japan USA

5 On the other hand In big crises there are dying: 1. Companies 2. Individuals/households 3. Non-viable project Is not Eurozone non-viable project???

6 Warning signals were coming: divergence and not convergence-growth of prices was very uneven in

7 Yields of 10 year government bonds: 12,0 7. května 30. března 10,0 28. dubna Řecko Irsko % Itálie Řecko 8,0 6,0 4,0 2,0 Skutečné zavedení Portugalsko Španělsko Itálie Francie Německo Nevratné stanovení směnného kurzu Německo Zdroj: Národní centrální banky, H.-W. Sinn, ifo Institut, München. Březen 2011 Francie 7

Španělsko Itálie Francie Německo 2008 2009 2010 2011 4 2 Nevratné stanovení směnného kurzu Německo

8 Current Acount Balance to GDP Eurozona (2009) % HDP Lucembursko 5,6 Nizozemsko 5,4 Německo 4,9 Rakousko* 3,2 Finsko 1,3 Belgie 0,5 Slovinsko -1,0 Francie -2,2 Irsko -2,9 Itálie -3,2 Slovensko -3,2 Malta -3,9 Španělsko -5,4 Kypr -8,3 Portugalsko -10,3 Řecko -11,2 * Zdroj: H.-W. Sinn, ifo Institut, München 8 8

-2,9 Itálie -3,2 Slovensko -3,2 Malta -3,9 Španělsko -5,4 Kypr -8,3 Portugalsko

9 Euro in PIIGS or in GIPSI Removal of currency risk Growing bancruptcy risk Imports of capital and deficits of foreign trade Sharp growth of spending in public and in private sector Real estate buble, public debt > Moral hazard of banks banking socialsm (bail-outs, low quality regulation, lack of own capital > Moral hazards of politicians (bail-outs, transfers)

sector Real estate buble, public debt > Moral hazard of banks banking socialsm (bail-outs,

10 Real Estate Prices čtvrtletí 2006 = Německo Itálie Španělsko Irsko -16%** -17% -24% Francie Velká Británie* ** Španělsko: IV. kvartál Zdroj: The * Economist Anglie a Wales. and Social Research Institute; UK: Katastr nemovitostí, Německo: DESTATIS; Francie: INSEE; Itálie: Banca d`italia, H.-W. Sinn, ifo Institut, München 23. září

Velká Británie* 10 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 ** Španělsko: IV. kvartál 2008.

11 SPECIAL PROBLEM TARGET II This is like Czechoslovakia in How long can it last?? In the case of collaps German debt is going up 40% of GDP, Luxemburg 10 GDPs

12 Eurozone has been caught into own trap. Political integration should follow economic one BUT IT WAS NOT THE CASE!!!!! We have three main scenarios what will happen

13 3 scenarios 1. Political integration of EU27 Probability close to ZERO 2. Disintegration of Eurozone to primes Good news: it will never happen Bad news: it may finish with 2 countries EU MAY NOT SURVIVE IT 3. Creation of hardcore and will go to USE

14 Small problem, who will be in the corre?? There will be for sure: Germany, Luxembourg, Austria and Neatherland May be Finland, Estonia, Slovakia, Slovenia and Belgium (or at least North of it) And we may call league or HANSA!! Northen Major challenge? Italy and France!

Neatherland May be Finland, Estonia, Slovakia, Slovenia and Belgium

15 And what about Czech Republic? The reasons for entering eurozone for CZ are still valid. Czech ECONOMY DOES NEED THE Czech ECONOMY DOES NEED THE SAME CURRENCY WHICH IS LEGAL TENDER ON TERITORY OF GERMANY WHAT EVER IS THE NAME: EURO, DEUTSCHE EURU, GULDEMARK OR D-MARK

Czech ECONOMY DOES NEED THE Czech ECONOMY DOES NEED THE SAME

16 WELCOME BACK TO WHOLY ROMAN EMPIRE OF GERMAN NATION Czech lands are 12 centuries part of German economic space. 40 years of Soviet Communism was exception from the rule Problem is political. Solution fix exchange rate between Koruna and legal tender valid in Germany

40 years of Soviet Communism was exception from the rule Problem

17 In the EU we are playing BLACK PETER CARD GAME!!!!!

18 For Czech Republic would be desirable To declare the will to enter Eurozone when ever it will be possible. STORY ABOUT EXCLUSIVE CLUB. CZ should to the same thing is Poland To follow the moves of PM Tusk, foreign minister Sikorski and finance minister Rostowski

19 8 GDP Česká republika e 2011f 2012f

2 1996 1997 1998 1999 2000 2001 2002 2003 2004

20 Current public deficit: Veřejný deficitčeská republika f 2012f

2007 2008 2009 2010 2011f 2012f -0.7-2 -3-4 -2.

21 Public Debt of CZ Veřejný dluhčeská republika f 2012f

22 Thanks for your attention:

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