Euro in the Soup: Three Possible Scenarios CERGE, Prague July 11, 2012 Jan Mládek www.mladek.eu Shadow minister of finance, ČSSD Chairman of FONTES RERUM www.fontes-rerum.cz
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
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!
Public Debt in the year 2010 250 200 198 150 143 119 100 80 85,1 83,5 98 50 38,5 0 EU Eurozone Czech Rep. Germany Italy Greece Japan USA
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???
Warning signals were coming: divergence and not convergence-growth of prices was very uneven in 1995-2009
Yields of 10 year government bonds: 12,0 7. května 30. března 10,0 28. dubna Řecko Irsko 14 12 10 8 6 % Itálie Řecko 8,0 6,0 4,0 2,0 Skutečné zavedení Portugalsko Španělsko Itálie Francie Německo 2008 2009 2010 2011 4 2 Nevratné stanovení směnného kurzu Německo 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Zdroj: Národní centrální banky, H.-W. Sinn, ifo Institut, München. Březen 2011 Francie 7
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 * 2008-15 -10-5 0 5 10 Zdroj: H.-W. Sinn, ifo Institut, München 8 8
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)
Real Estate Prices 1996 2009 130 120 1.čtvrtletí 2006 = 100 110 100 90 80 70 60 Německo Itálie Španělsko Irsko -16%** -17% -24% 50 40 30 20 Francie Velká Británie* 10 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 ** Španělsko: IV. kvartál 2008. 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 2009 10 10
SPECIAL PROBLEM TARGET II This is like Czechoslovakia in 1992. How long can it last?? In the case of collaps German debt is going up 40% of GDP, Luxemburg 10 GDPs
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
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
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!
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
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
In the EU we are playing BLACK PETER CARD GAME!!!!!
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
8 GDP Česká republika 6.8 7 6 5.7 4 4.5 4.2 3.8 4.7 3.1 3.1 2 1.7 2.1 1.6 2 1 0-0.2 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e 2011f 2012f -0.9-2 -4-4.7-6
Current public deficit: Veřejný deficitčeská republika 0-1 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011f 2012f -0.7-2 -3-4 -2.8-3.2-2.8-3.2-2.4-2.2-4 -3.5-5 -4.8-6 -5.8-7 -6.7
Public Debt of CZ Veřejný dluhčeská republika 45 40 35 34.4 37.6 40 42 30 25 23.9 27.1 28.6 28.9 28.4 28.3 27.9 28.7 20 15 10 5 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011f 2012f
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