Vysoká škola ekonomická v Praze Fakulta mezinárodních vztahů Katedra mezinárodního obchodu a IAE de Lyon Université Jean Moulin Lyon 3 TRENDY V MEZINÁRODNÍM PODNIKÁNÍ Sborník z mezinárodního vědecké konference Praha a Lyon 24. června 2010
Hlavní cíl konference: Posílit vzájemnou spolupráci obou partnerských univerzit v oblasti vědy a výzkumu, jakož i vytvořit diskusní platformu k rozvoji vědeckých metod a postupů směřujících k vyšší kvalitě doktorských disertačních prací a větší úspěšnosti publikačních výstupů. Mezinárodní vědecká konference s videopřenosem je součástí výzkumných aktivit FMV VŠE v Praze hrazených z prostředků institucionalizované podpory na rozvoj výzkumné organizace. Mezinárodní vědecký a programový výbor: Prof. Ing. Hana Machková, CSc. Doc. Ing. Eva Černohlávková, CSc. Doc. Ing. Alexej Sato, CSc. Doc. Ing. Josef Taušer, Ph.D. Prof. Yves Livian Prof. Alain Rroger Prof. Ulrike Mayrhofer Prof. Julien Vercueil Recenzent: Prof. Ing. Božena Plchová, CSc., VŠE Praha Prof. Pierre Lacoin, Audencia Nantes Sborník neprošel jazykovou úpravou. Za věcnou a jazykovou správnost odpovídají autoři. Zvláštní poděkování patří hlavnímu partnerovi workshopu společnosti L oréal. Vysoká škola ekonomická v Praze, Nakladatelství Oeconomica, 2010, ISBN 978-80-245-1404-8
University of Economics, Prague Faculty of International Relations Department of International Trade and IAE de Lyon Université Jean Moulin Lyon 3 TRENDS IN INTERNATIONAL BUSINESS Proceedings Prague and Lyon June 24 th 2010
Key objective of the conference: To strengthen the collaboration between both universities in the area of research and to create a broad research basis with the aim of increasing the overall quality of doctoral theses and other publication outputs. The conference is part of the research activities of the Faculty of International Relations financed with institutional support for the development of research organization. International Scientific and Programme Committee: Prof. Ing. Hana Machková, CSc. Doc. Ing. Eva Černohlávková, CSc. Doc. Ing. Alexej Sato, CSc. Doc. Ing. Josef Taušer, Ph.D. Prof. Yves Livian Prof. Alain Rroger Prof. Ulrike Mayrhofer Prof. Julien Vercueil Reviewed by: Prof. Ing. Božena Plchová, CSc., VŠE Praha Prof. Pierre Lacoin, Audencia Nantes Special thanks to L oréal - main partner of the conference. Volume has not been linguistically adjusted. Responsibility for the subject matter lies with the authors.
Obsah (vybrané příspěvky s původními čísly stran): The impact of the world financial and economic crisis on the Single European Currency............................................ (Ilya Bolotov) 23 Problem of nominal and real convergence should Maastricht convergence criteria be changed?................................ (Radek Čajka) Vnější rovnováha nových členských států EU...................... (Kateřina Gajdušková) Kulturní specifika managementu multinacionálních firem........... (Zuzana Křečková Kroupová) Global Strategy of L Oréal Professional Products Division........... (Ondřej Machek - Martin Machek) Východní Evropa řadí dvojku................................... (Lukáš Mohelský) Úvěrování v České republice v době finanční a ekonomické krize a jeho determinanty............................................ (Michal Nejedlý) Možné výhody a nevýhody volného měnového kurzu pro české exportéry v souvislosti se světovou finanční a ekonomickou krizí...... (Zdeněk Pavlík) New channels for marketing communications of luxury products..... (Yana Shamina) Problémy spojené s mezinárodní přepravou zboží v dobách nejistoty - Aplikace resource-based view................................... (Eva Švábková) International Distribution through Flagship Stores Place matters flagships in fashion distribution hierarchy........... (Marija Tisovski) 49 69 99 136 228 244 259 315 363 378
Dopad světové finanční a ekonomické krize na jednotnou evropskou měnu 1 The impact of the world financial and economic crisis on the Single European Currency Ing. Ilya Bolotov Katedra mezinárodního obchodu FMV VŠE v Praze ilya.bolotov@gmail.com Introduction The euro together with the US dollar, Japanese yen and monetary units of several other states is considered to be a world currency, i.e. the one which used as a means of payment, investment and reserve holding at the international scale. The position of euro has been strengthening since its adoption in January 1999. However, during the world financial and economic crisis this trend may show some fluctuations. The aim of this article is therefore to examine the impacts of the crisis on the euro, especially in the light of the recent events (mainly the situation in Greece) and to attempt to draw implications for the new EU member states. In general, the development of a currency is linked to the development of its home country or group of countries, as in the case of euro. Therefore when the European Union showed poor economic results during the crisis, this lead to a depreciation of the Single European Currency against major world currencies and vice versa. This problem will be studied in the first part of the article. The other factor which influences the position of the European currency is the share of the European Union in the world economy and politics. Changes in this position usually happen in the long run, see the transition from the British pound to the US dollar. However, the crisis could have accelerated these trends. The second part of the article will attempt to determine, whether this has happened or not. Finally, the macroeconomic stability inside the European Union is also an important factor influencing the position of the euro. As not all the EU members use the single currency, it depends primarily on the euro area member countries and, what is more important, on the degree of their mutual integration. The development of this integration during the crisis will be studied in the third part of the article. 1 This article was written in the framework of the IGS VŠE project F2/15/2010 Ekonomická rovnováha nových členských zemí EU v období krize aneb euro jako možný stabilizační prvek regionu? 23
After examining all these factors, the article will suggest implications for the new member states of the EU, which are planning to adopt the euro in future. The article is based on macroeconomic data provided by the Eurostat, the European Central Bank and the World Trade Organization, and processed by basic statistical methods, the Hodrick-Prescott filter and correlation analysis. Development of exchange rates during the crisis The overall development and position of the currency can be showed by the development of exchange rates, which are considered to be one of the most important prices in the economy. However, it is important to keep in mind that the exchange rates are influenced by the factors in both selected countries. The development of the euro will be measured against the four major world currencies: the US dollar, the Japanese yen, the British pound and the Swiss franc. The following graphs reflect this development and trends. Graph 1: Development of EUR/USD and EUR/JPY exchange rates Source: European Central Bank, www.ecb.int; own calculations Graph 2: Development of EUR/GBP and EUR/CHF exchange rates Source: European Central Bank, www.ecb.int; own calculations 24
Almost all graphs, except the EUR/GBP show the same polynomic trend (3 rd degree) with R 2 ranging from 69 % to 86 %. The most volatile development is the one of the EUR/CHF, the least volatile (closer to trend) is the EUR/USD. The reasons for this trend may be the following. Immediately after its adoption, the euro depreciated against the major currencies. The reasons were, among others, the vast growth of the American economy and psychological factors connected to the new currency, especially its dematerialised form. However, after 2001-2002 the euro started to appreciate in the long run. The reasons for this trend may lie in the instability of the United States: terrorist attacks in September 2001, the crisis of the new technologies, scandals around big American companies and a short recession in the USA, the ongoing decrease in interest rates, as well as military conflicts in Afghanistan and Iraq. 2 The European Union was also more stable than Japan, which suffered from a long recession in 1990s and from a high indebtedness of the economy, deflation, bankruptcies etc. The other explanation may be that in 2006 Japan had almost zero interest rates, promoting carry trade deals and causing depreciation of the yen (borrowing in yen, investing abroad). 3 The development of the Swiss franc also shows the above described trends and is most likely caused also by the problems of the Swiss banks (Credit Suisse, UBS etc.), which resulted from the American subprime crisis. The situation in the United Kingdom was more stable, although the same development can be seen. The situation in 2008, however, changed to the disadvantage of the euro, when the European Union entered recession, mainly due to the stabilisation of the Unites States and the rest of the world through the adoption of anti-crisis measures. The development of the exchange rates shows signs of correction, except the one of the United Kingdom, which had its own internal problems. Until 2009-2010 these trends were most affected by the situation in the world and by the relative changes in position of the economic centres (USA, EU and Japan). This will be discussed in the second part of the article. The current development of the currencies against the euro is, however, dependent on the internal stability of the European Union, mainly the problems of Greece, Ireland, Spain and Portugal, see part three. These problems lead to the depreciation of the euro and the further development will be dependent on the actions taken by the European Union and the resolution of this situation. 2 Cf. Brůžek, A., Smrčková, G., Záklasník, M. Evropská měnová integrace a Česká republika. 1. ed. Prague: Velryba, 2007, p. 171-172. 3 BusinessInfo.cz. Japonsko: Ekonomická charakteristika země. Available from http://www.businessinfo.cz/cz/sti/japonsko-ekonomicka-charakteristika-zeme/4/1000424/; see also Colosseum, a.s. Japonský jen short. Available from z http://www.colosseum.cz/ userfiles/file/analyza/analyza_200210_yen.pdf, access date 5.03.2010 25
Euro in the world economy during the crisis The position of a currency in the world economy is usually analysed from three main perspectives: the international trade, the international financial markets and countries foreign exchanges reserves. Euro in the international trade At the present time there are no exact statistics, which show the share of euro and other currencies in the international trade. However, certain authors attempt to fill this gap by studying major invoicing currencies, cf. for example Kamps (2006) and Goldberg (2008). These authors state that the position of euro has been strengthening since its adoption. Nevertheless, there is not enough data to analyse the situation in crisis. Therefore the position of euro will be estimated indirectly in the article. The first and simplest way is to calculate the share of the European Union in world exports and imports. Here we will concentrate on the so-called extratrade, i.e. trade with countries outside of the EU, and take into account the EU as a whole (27 member states). 4 The following tables show the shares of the economic centres and the BRIC countries (Brazil, Russia, India and China) in international merchandise trade 5 and their yearly changes. Table 1: The share of economic centres and the BRIC in merchandise exports SHARE IN EXPORTS 2003 2004 2005 2006 2007 2008 2009 European Union (27) 13% 13% 12,5% 12,0% 12,2% 11,9% 12,2% United States 9,6% 8,8% 8,6% 8,5% 8,2% 8,0% 8,5% Japan 6,2% 6,1% 5,7% 5,3% 5,1% 4,9% 4,7% Total BRIC 9,3% 10,3% 11,7% 12,6% 13,5% 14,3% 14,6% World 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% PERCENTAGE CHANGE 2003 2004 2005 2006 2007 2008 2009 European Union (27) - -0,8% -2,9% -3,8% 1,1% -1,8% 2,5% United States - -7,5% -2,8% -1,4% -3,1% -2,5% 6,0% Japan - -1,3% -7,6% -5,9% -4,4% -4,8% -4,1% Total BRIC - 10,7% 13,2% 8,4% 6,5% 5,8% 2,1% Source: World Trade Organization, www.wto.org, own calculations 4 Assuming that the EU member states which do not form the Euro Area also use the single European currency in their foreign trade with non-eu countries in substantial quantities 5 Information on commercial services was not available for 2009 at the moment of finishing the article 26
The table indicates that the share of the EU exports is slowly declining in the long run: it was the highest in the world in 2003, but in 2006 was surpassed by the BRICs. The decline of the USA and especially Japan was faster. These trends were, however, not accelerated by the crisis. The positive values in 2009 for the USA and the EU may be explained by the overall decline in world exports, which was deeper than the one of these two centres (23% compared to 21% and 18%). The situation with imports is slightly different, cf. Table 2. Table 2: The share of economic centres and the BRIC in merchandise imports SHARE IN IMPORTS 2003 2004 2005 2006 2007 2008 2009 European Union (27) 13,5% 13,4% 13,5% 13,6% 13,8% 14,0% 13,2% United States 16,6% 15,9% 16,0% 15,4% 14,1% 13,2% 12,7% Japan 4,9% 4,8% 4,8% 4,7% 4,4% 4,6% 4,4% Total BRIC 7,8% 8,6% 9,3% 9,9% 10,7% 11,7% 12,5% World 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% PERCENTAGE CHANGE 2003 2004 2005 2006 2007 2008 2009 European Union (27) - -0,7% 1,2% 0,9% 0,7% 1,5% -5,3% United States - -3,8% 0,1% -3,4% -8,3% -7,0% -3,6% Japan - -2,5% 0,0% -2,0% -6,5% 6,2% -5,8% Total BRIC - 10,7% 7,5% 6,7% 8,7% 8,8% 6,5% Source: World Trade Organization, www.wto.org The share of the European Union in world imports is fluctuating, while the shares of the USA and Japan are declining. The faster decline in the US imports may be explained by the fact that this country was the first to enter the crisis. The year 2009 then represents a steep fall for all three centres. The only economic group whose share in world exports and imports has not declined was the BRIC countries. However, the crisis slowed this growth as well. Nevertheless, the BRIC currencies are not considered as world currencies, so these countries use the euro and the dollar in their foreign trade. Therefore whether their growth benefits the euro or not, requires further analysis. Overall, the European Union is better off in international trade in relation to other countries, whose share is declining faster. Another way to analyse the position of the euro in international trade is to study non-economic factors leading to the selection of the currency. The most obvious reason for selecting the euro and abandoning the dollar is increased trade with the EU and joining the euro area. On the other hand, certain countries, e.g. OPEC 6, have taken into account the possibility of abandoning the dollar and 6 Cf. Rajamanickam, M., Samii M., Thirunavukkarasu, A. Euro Pricing of Crude Oil: An OPEC's Perspective, Southern New Hampshire University, Jan. 2004. Available from http://www.snhu.edu/2835.asp, access date 28.05.2010. 27
using the euro for political reasons. However, this plan was not beneficial for all countries. The only country which was planning to start this program was Iran. Euro in international finance The position of the euro in international financial markets is also difficult to measure due to the absence of exact criteria. For example, it can be estimated by comparing market capitalisation and loans outstanding in the economic centres. However, to simplify the analysis, in this article the international investment position (the financial account) at the end of the year will be used. See table 3. Table 3: The international investment position of economic centres EURO AREA 2003 2004 2005 2006 2007 2008 2009 Assets 7676833 8693942 10318931 11976870 13929074 14266731 13934275 Liabilities 8429610 9480427 11242092 12971151 15130401 15647602 15502834 L/A 1,10 1,09 1,09 1,08 1,09 1,10 1,11 USA 2003 2004 2005 2006 2007 2008 2009 Assets 7638086 9340634 11961552 14428137 18278842 19888158 25158100 Liabilities 9724599 11586051 13886698 16612419 20418758 23357404 28031000 L/A 1,27 1,24 1,16 1,15 1,12 1,17 1,11 JAPAN 2003 2004 2005 2006 2007 2008 2009 Assets 385538 433864 506191 558106 610492 519179 554826 Liabilities 212720 248067 325492 343024 360271 293671 288603 L/A 0,55 0,57 0,64 0,61 0,59 0,57 0,52 Note: The data for the euro area and USA are in millions of national currency, for Japan in billions of yen. The values for the year 2009 in the case of USA were estimated on the basis of Brown's linear exponential smoothing model with alpha = 0,8472 for assets and 0,9999 for liabilities, based on yearly observations since 1976 Source: European Central Bank, www.ecb.int; Bureau of Economic Analysis, www.bea.gov; Bank of Japan, http://www.boj.or.jp; own calculations The assets show the amount of foreign capital owned by domestic agents, i.e. investment outside the country. Liabilities represent the investment received by the country. The L/A indicator shows the ratio between the liabilities and assets (the coverage of liabilities). If this ratio grows, the liabilities are growing faster than the assets. In the article it will be assumed that this development means bigger interest in the country and its currency. In other words, if the position of euro is to strengthen during the crisis, the L/A ratio should be higher than those of the other centres. In the case of the euro area the L/A ratio was fluctuating with a small decline before the crisis and a similar rise during the crisis years. For the USA the ratio was rapidly decreasing before the crisis. The year 2008 showed a sharp 28
correction, presumably, due to the development of the European Union, meaning a return of capital to the United States. The year 2009, according to estimations, should continue the long-term trend. Therefore in 2009 the L/A of the euro area and the USA are approximately the same. The ratio of Japan showed a steep growth before the crisis and a fall during the years 2007-2009. From these observations it is possible to conclude that the crisis has also strengthened the position of the euro, although its main competitor remains the American economy. The stability of the EU will therefore define the further development of the situation. In the long run it will also be important to examine the situation of other countries, especially the BRICs. Euro in foreign exchange reserves The shares of the major world currencies in countries foreign exchange reserves and their percentage changes are shown in the following table. These statistics may also not be exact due to the fact that countries are not obliged to send them to the International Monetary Fund. Table 4: The composition of allocated foreign exchange reserves ALLOCATED RESERVES 2003 2004 2005 2006 2007 2008 2009 Allocated reserves 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% Claims in euros 25,2% 24,8% 24,0% 25,1% 26,3% 26,4% 27,4% Claims in U.S. dollars 65,9% 65,9% 66,9% 65,5% 64,1% 64,1% 62,1% Claims in Japanese yen 3,9% 3,8% 3,6% 3,1% 2,9% 3,1% 3,0% Claims in other currencies 5,0% 5,4% 5,5% 6,3% 6,7% 6,4% 7,5% YEARLY CHANGES 2003 2004 2005 2006 2007 2008 2009 Claims in euros - -1,4% -3,0% 4,3% 4,7% 0,5% 3,6% Claims in U.S. dollars - 0,0% 1,5% -2,1% -2,1% 0,0% -3,1% Claims in Japanese yen - -2,7% -6,6% -14,0% -5,0% 7,1% -3,8% Claims in other currencies - 8,9% 1,0% 16,1% 5,1% -4,8% 17,7% Source: COFER database, International Monetary Fund, www.imf.org; own calculations The table shows the share of allocated reserves by major world currencies. The largest share in absolute terms has the US dollar, followed by the euro. The shares of other currencies are less important. The development of the shares is, however, different. The share of the US dollar and yen are declining in the long run, which has accelerated during the crisis years. The euro and, especially, other currencies show a growing trend. The only exception was the year 2008 when the yen showed high growth and the euro almost zero growth. 29
The share of the euro is therefore rising in the foreign exchange reserves as well. However, these conclusions may be partly misleading, as the share of allocated reserves is also decreasing (from 63.3 % in 2006 to 56.5 % in 2009). Nevertheless, it can be seen that the relative position of the euro in the world economy is strengthening during the crisis. Situation inside the euro area To have the full picture it is also necessary to examine the situation inside the euro area, as its problems represent the factors that nowadays cause the euro to depreciate. In this article the situation in the European Union will be compared to the optimal currency area, a concept used to describe a wellfunctioning monetary union. In some studies, e.g. Helísek alii (2009) and Brůžek alii (2007), authors state up to six main criteria for the formation of an optimal currency area (here all six are examined). The first four criteria are economic: The mobility of the factors of production inside the examined area The diversification of production and exports of the area members The openness of the member countries economies The synchronization of members business cycles The last two are non-economic: Fiscal transfer, i.e. mutual financial aid in cases of asymmetric shocks among the area s member countries Higher cohesion among member countries, e.g. in social areas The European Union fulfils the majority of these criteria. Its member countries are open economies (e.g. Germany is one of the leading exporters in the world) whose production and exports are diversified. Therefore these two criteria are fulfilled. The mobility of factors of production is the principle and goal of the Common Market, although it is still not perfect. The mobility of labour is still restricted in the EU, partly due to the cultural and language barriers and due to differences in law. This criterion is thus not fulfilled. The synchronization of the business cycles inside the euro area between 1995 and 2009 is shown in tables 5 and 6. The analysis continues the analysis performed by Helísek alii (2009) and is based on correlation analysis of the cyclical component of seasonally adjusted quarterly GDP time series (prices of the year 2000) cleaned by the Hodrick-Prescott filter with lambda = 1600. For the reasons of simplification, only the original composition of the Euro Area (12 countries) is studied. 30
Small changes between the correlations in this article and in Helísek alii (2009) may be explained by the length of the time series: the article works with the period between 1995-2009, while Helísek alii (2009) with 1995-2008. For the purpose of the analysis, the period was divided into three subperiods: 1995-1999 (before the formation of the monetary union), 1999-2006 (the monetary union before the crisis) and 2007-2009 (the crisis years). Table 5 compares the situation before and after the creation of the monetary union. Table 5: The business cycle synchronisation in years 1995-2006 AT BEL FIN FRA GER GRE IRL ITL LX NL PT ES EA12 1995-1998 AT 0,32 0,33 0,92 0,35 NA -0,50 0,46 0,64 0,59 0,64 0,80 0,74 BEL 0,91 0,66 0,53 0,63 NA 0,63 0,73 0,55 0,72 0,12 0,62 0,78 FIN 0,88 0,90 0,40 0,32 NA 0,09 0,27 0,36 0,49 0,36 0,40 0,47 FRA 0,84 0,90 0,92 0,51 NA -0,35 0,55 0,74 0,69 0,62 0,94 0,89 GER 0,70 0,69 0,77 0,82 NA 0,60 0,42 0,38 0,84 0,04 0,58 0,80 GRE 0,12 0,23 0,27 0,16 0,19 NA NA NA NA NA NA NA IRL 0,63 0,60 0,65 0,67 0,58-0,10 0,72-0,01 0,11-0,61-0,17 0,50 ITL 0,63 0,72 0,77 0,84 0,86 0,12 0,61 0,54 0,43-0,05 0,53 0,71 LX 0,83 0,70 0,77 0,76 0,74-0,01 0,57 0,64 0,57 0,47 0,77 0,73 NL 0,87 0,85 0,86 0,89 0,86 0,16 0,56 0,72 0,77 0,43 0,77 0,86 PT 0,73 0,64 0,64 0,71 0,73-0,11 0,41 0,63 0,75 0,84 0,58 0,37 ES 0,83 0,81 0,86 0,88 0,83 0,22 0,68 0,82 0,76 0,83 0,64 0,91 EA12 0,82 0,84 0,89 0,94 0,96 0,19 0,67 0,92 0,79 0,91 0,76 0,92 1999-2006 Source: Eurostat, ec.europa.eu/eurostat; own calculations According to Helísek alii (2009), the analysis shows strong correlations between several countries, which form the core of the euro area. 7 They are Austria, Belgium, France and Germany. Table 5 then shows that their synchronisation deepened after the creation of the monetary union (with a small weakening between France and Austria, see figures in bold). Nevertheless, the series are too short to form definitive conclusions. 7 Helísek alii. Euro v ČR z pohledu ekonomů. Plzeň: Aleš Čeněk, 2009, p. 54 31
Table 6: The business cycle synchronisation in years 2007-2009 AT BEL FIN FRA GER GRE IRL ITL LX NL PT ES EA12 1999-2006 AT 0,91 0,88 0,84 0,70 0,12 0,63 0,63 0,83 0,87 0,73 0,83 0,82 BEL 0,98 0,90 0,90 0,69 0,23 0,60 0,72 0,70 0,85 0,64 0,81 0,84 FIN 0,98 0,99 0,92 0,77 0,27 0,65 0,77 0,77 0,86 0,64 0,86 0,89 FRA 0,96 0,98 0,96 0,82 0,16 0,67 0,84 0,76 0,89 0,71 0,88 0,94 GER 0,98 0,99 0,98 0,97 0,19 0,58 0,86 0,74 0,86 0,73 0,83 0,96 GRE 0,94 0,91 0,94 0,89 0,89-0,10 0,12-0,01 0,16-0,11 0,22 0,19 IRL 0,90 0,92 0,90 0,94 0,88 0,91 0,61 0,57 0,56 0,41 0,68 0,67 ITL 0,97 0,99 0,97 0,99 0,97 0,90 0,94 0,64 0,72 0,63 0,82 0,92 LX 0,91 0,94 0,89 0,96 0,91 0,81 0,91 0,96 0,77 0,75 0,76 0,79 NL 0,99 0,96 0,98 0,94 0,97 0,93 0,86 0,94 0,87 0,84 0,83 0,91 PT 0,96 0,99 0,97 0,98 0,98 0,88 0,91 0,98 0,94 0,94 0,64 0,76 ES 0,97 0,96 0,97 0,95 0,94 0,98 0,94 0,96 0,89 0,97 0,93 0,92 EA12 0,99 0,99 0,99 0,99 0,99 0,94 0,93 0,99 0,94 0,97 0,98 0,98 2007-2009 Source: Eurostat, ec.europa.eu/eurostat; own calculations Table 6 shows the situation before and during the crisis. The table shows that almost all countries, not only the core, show very high business cycle synchronization during the financial and economic crisis (80-90 %). The reason is obvious: all member countries were hit by the crisis and are in recession without major asymmetries. A very particular case is, however, Greece, whose situation now is marked with debt problems. Table 5 shows very low; sometimes even negative correlations between this country and the others (not higher than 30 %). Greece thus represented a source of an asymmetric shock before the crisis. This could be a problem if the world financial crisis had not started and the Greek development had had the same problems as nowadays. Nevertheless, overall it is possible to conclude that the business cycle synchronization is deepening in the European Union. Therefore this criterion is fulfilled as well. Paradoxically, the problems of Greece have lead to the fulfilment of the fiscal transfer (financial aid) criterion 8, which had not been fulfilled before the crisis. The European Union has thus moved closer towards the optimal currency area. The same may be applied to the social and political cohesion among its member countries during the crisis, as, at least at the government level, they are seeking ways to solve the crisis together. 8 BBC NEWS. Eurozone leaders approve Greece aid packag. Saturday, 8 May 2010. Available from http://news.bbc.co.uk/2/hi/8669488.stm, access date 28.05.2010 32
The financial and economic crisis may thus lead to a closer integration of the European Union despite the current problems. Nevertheless, the fiscal situation is not positive as the following two tables show. Table 7: Government budget as % of GDP AT BE FIN FRA GER GRE IRL ITL LX NL ES PT MT CY SL SK 1999-2006 -1,7-0,4 3,6-2,6-2,4-5,0 1,8-2,9 2,3-0,6-0,1-3,6-5,7-3,4-2,6-5,7 2007-0,4-0,2 5,2-2,7 0,2-5,1 0,1-1,5 3,6 0,2 1,9-2,6-2,2 3,4 0,0-1,9 2008-0,4-1,2 4,2-3,3 0,0-7,7-7,3-2,7 2,9 0,7-4,1-2,8-4,5 0,9-1,7-2,3 2009-3,4-6,0-2,2-7,5-3,3-13,6-14,3-5,3-0,7-5,3-11,2-9,4-3,8-6,1-5,5-6,8 Source: Eurostat, ec.europa.eu/eurostat; own calculations Table 8: Gross debt as % of GDP AT BEL FIN FRA GER GRE IRL ITL LUX NL ES PT MT CY SL SK 1999-2006 65,5 100,6 43,0 61,2 63,1 99,6 33,4 107,2 6,3 52,5 50,9 56,7 63,8 61,3 27,2 42,4 2007 59,5 84,2 35,2 63,8 65,0 95,7 25,0 103,5 6,7 45,5 36,2 63,6 61,9 58,3 23,4 29,3 2008 62,6 89,8 34,2 67,5 66,0 99,2 43,9 106,1 13,7 58,2 39,7 66,3 63,7 48,4 22,6 27,7 2009 66,5 96,7 44,0 77,6 73,2 115,1 64,0 115,8 14,5 60,9 53,2 76,8 69,1 56,2 35,9 35,7 Source: Eurostat, ec.europa.eu/eurostat; own calculations The tables show the financial convergence (Maastricht) criteria for the euro area member countries before the crisis (average values) and in the crisis years. It can be seen that for most countries the 3 % budget deficit threshold was surpassed (see figures in bold). In Ireland, Greece, Spain and Portugal the deficit even varies between 9 % and 14 % in 2009. The similar situation is with the gross debt, which is rising (see figures in bold). However, these problems are common (symmetric) for almost all euro area members, which may be also beneficial for the integration inside the European Union. Conclusion During the crisis the situation inside the European Union is not stable, although the integration between member countries is deepening according to the criteria used in the article. This reflects the development of the EUR/USD, EUR/JPY and EUR/CHF exchange rates (depreciation of the euro; EUR/GBP exchange rate reflects the problems inside the United Kingdom). This, however, has not yet affected the position of the euro in the world economy, measured by its share in the international trade, the international finance and foreign exchange reserves, which remains strong and is growing. The advice for the EU new member states may thus be to wait until the situation becomes clearer before announcing their decision to join the euro area, as e.g. in the case of the Czech Republic. The development of the euro (positive or negative) may force these countries to reconsider their goals and existing predictions regarding the adoption of the Single European Currency. 33
And, as the crisis has also affected these states, their main priority at the present time may be to stimulate their economies and restore the conditions allowing them to join the euro area. References 1. BRŮŽEK, A., SMRČKOVÁ, G., ZÁKLASNÍK, M. Evropská měnová integrace a Česká republika. 1. ed. Prague: Velryba, 2007. ISBN 978-80- 85860-19-1 2. HELÍSEK alii. Euro v ČR z pohledu ekonomů. Plzeň: Aleš Čeněk, 2009. ISBN 978-80-7380-182-3 3. GOLDBERG, L. Observations on Currency Invoicing of International Trade. FRB NY, 2008. Available from http://www.ny.frb.org/research/economists/ goldberg/petersoniiedollarandtradegoldberg.pdf, access date 28.05.2010 4. KAMPS, A. The euro as invoicing currency in international trade. ECB, 2006. Available from https://www.ecb.eu/pub/pdf/scpwps/ecbwp665.pdf, access date 5.03.2010 5. RAJAMANICKAM, M., SAMII, M., THIRUNAVUKKARASU, A. Euro Pricing of Crude Oil: An OPEC's Perspective, Southern New Hampshire University, Jan. 2004. Available from http://www.snhu.edu/2835.asp, access date 28.05.2010 6. BBC NEWS. Eurozone leaders approve Greece aid package. Saturday, 8th May 2010. Available from http://news.bbc.co.uk/2/hi/8669488.stm, access date 28.05.2010 Summary The aim of the article is to examine the impacts of the crisis on the euro, especially in the light of the recent events (mainly the situation in Greece) and to attempt to draw implications for the new EU member states. Firstly, the article studies the development of the EUR/USD, EUR/JPY, EUR/GBP and EUR/CHF exchange rates before and during the crisis. Secondly, it examines the changes in the position of the euro in the world economy in the crisis years. The share of the European Union in the international trade, international finance and countries foreign exchange reserves is examined. Finally, the situation inside the European Union during the crisis is compared to the optimal currency area and the degree of integration before and during the crisis is measured. The article is based on macroeconomic data provided by the Eurostat, the European Central Bank and the World Trade Organization, and processed by basic statistical methods, the Hodrick-Prescott filter and correlation analysis. 34
Problém nominální a reálné konvergence měla by být Maastrichtská konvergenční kriteria změněna? Problem of nominal and real convergence should Maastricht convergence criteria be changed? Ing. Radek Čajka 1 University of economics, Prague radek.cajka@vse.cz Introduction The aim of this paper is to review economic development of two countries that recently adopted single European currency and to point out possible consequences of those situations, when nominal convergence is being given higher priority to than to the process of real convergence of an economy. Thus, this paper primarily focuses on comparison of real and nominal convergence and their impacts on accessing process to the European monetary union, and stresses out possible unfavorable effects of convergence process and underestimation of the importance of real convergence in case of two new euroarea member states. The two economies that were taken under review are Slovenia and Slovakia, which adopted single European currency at the beginning of 2007, resp. 2009. Under review, on the other hand, weren t taken other two new EU member states that also joined euro area (Malta and Cyprus, both since 2008), because their economies are too small and different in structure from the other member states. In both these countries comes the biggest part of national GDP from tourism, which has been already using euro as the main currency for many years. Therefore, the adoption of euro was logical consequence for both these countries and didn t represent any bigger economic change. The issue of real and nominal convergence is crucial for countries joining the euro area. But there is a problem by assigning level of importance to the individual types of convergence forms and convergence criteria. Successful euro adoption requires complete fulfillment of five nominal convergence criteria that combine both monetary and fiscal elements. These criteria should prevent from euro adoption by those countries, whose fiscal or (and) monetary performance could negatively influence performance of the euro area. But the problem that might not be seen at first glance is that there isn t any part of review process, which would deal with the question of how the joining country has come to the fulfillment of these nominal criteria. The review process doesn t contain both if and how questions, but only the if questions. The how questions 1 Ph.D. student and assistant lecturer within Faculty of international relations, Department of international trade. 49
should be dealt with within the review process of real convergence, but there isn t any, because real convergence is only vaguely defined in the euro area access conditions (exact wording is: country should try to accomplish the highest possible level of real convergence). Consequences of underestimation of real convergence process is described in the paper using recent development in two above mentioned countries, Slovenia and Slovakia. Theoretical background is being discussed in the second part of this paper. Literature overview The below stated papers had been studied in order to get detailed and different views on this topic. Nevertheless this paper is based on the author s approach. Arjana Brezigar Masten, Igor Masten: Control of Inflation on the Road to the European Monetary Union, The Case of Slovenia. Eastern European Economics, vol. 47, no. 6, November December 2009, pp. 5 21. Marie-José Rinaldi-Larribe: Is economic convergence in New Member States sufficient for an adoption of the Euro? The European Journal of Comparative Economics, Vol. 5, n.2, pp. 133-154. ISSN 1722-4667. José García-Solanes, Ramón María-Dolores: The New Member States and the Process towards EMU, Review of Development Economics, 12(3), 655 667, 2008. Anna Lipinska: The Maastricht Convergence Criteria and Optimal Monetary Policy for the EMU Accession Countries, ECB Working paper series NO 896 / MAY 2008, ISSN 1725-2806 (online). John Lewis, Karsten Staehr: The Maastricht Inflation Criterion: What is the effect of Expansion of the European Union? Bank of Estonia Working Paper Series, 11/2007. Paul De Grauwe, Gunther Schnabl: Nominal Versus Real Convergence EMU Entry Scenarios for the NewMember States, KYKLOS, Vol. 58 2005 No. 4, 537 555. Stanislav Šaroch, Martin Srholec, Vladimír Tomšík: Euro Adoption in the New EU Member Countries - Speed Limits on a One-Way Road, Eastern European Economics, vol. 43, no. 2, March April 2005, pp. 5 24. The case of Slovenia Brief introduction Slovenia joined the euro area at the beginning of 2007 and experienced directly in the first year of its euro area membership negative consequences arising from economic unnatural approach towards fulfillment of nominal convergence criteria in the recent past. Slovenia had been experiencing for the whole 1990 s and first years of the new millennium big problems with reducing relatively high inflation rate. Since inflation criterion is one of the five nominal convergence criteria, this situation constituted an obstacle in their fulfillment. The other four criteria had been fulfilled without any bigger problems, therefore Slovenia had concentrated on lowering the inflation rate and at that time started 50
the process of economic unnaturalness. In the end, it managed to lower the inflation rate to the needed level only by concluding an unwritten agreement between Slovenian government and labor unions in Slovenia on substantial lowering their wage claims for those years that were important for calculating inflation rate criterion value. Final outcome of this agreement appeared to be successful and Slovenia joined the EMU. But afterwards labor unions increased again their wage claims to compensate the low wage rise in the past years, which directly influenced price level in Slovenia. But since the economy abandoned its autonomous monetary policy (due to euro adoption), it hasn t had any standard economic tool to react to this situation (e.g. can t raise interest rates). Detailed description and explanation of the situation As it is shortly described above, Slovenia had been experiencing a relatively long period of higher inflation rate back in the 1990 s and at the beginning of the new millennium. One of the most important reasons of that development (apart from rising price level to balance its level in western market economies) was rapidly growing level of wage claims coming from all sectors of Slovenian economy 2. The reason was clear people saw fast growing prices and wanted to retain their real income level. The whole process was speeded-up by labor unions, who are responsible for collective wage bargaining. Inflation rate reached its peak in 2001 by achieving nearly 10 % rate 3 (as can it be seen from Graph 1). Slovenian central bank had to react to this unfavorable development by increasing the interest rates (main refinancing operations rate development is shown on the graph), which were in 2001 about 3.5 percentage points above the euro area rates. This raising of rates really helped start reducing the inflation rate (and thus inflation differential between Slovenia and the euro area), but interest rates differential still remained nearly the same. 2 Problem was not that much rapidly growing level of labor productivity, which caused falling competitiveness. 3 Graph depicts development of special form of inflation - 12-month average rate of change that reflects long-term inflationary development and is in a way a method for seasonal adjustment. This inflation rate is also used in calculations for inflation criterion within Maastricht convergence criteria. If we depicted standard form of inflation (annual rate of change compares given month with the same month of previous year), inflation rates in 2001 would reach up to the mentioned 10 %. 51
Graph 1 Comparison of euro area interest rates development with Slovenian central bank interest rates and Slovenian inflation rate development 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 10,0 10,0 Inflation rate; euro area interest rate (in %; % pa.a) 9,0 9,0 8,0 8,0 7,0 7,0 6,0 6,0 5,0 5,0 4,0 4,0 3,0 3,0 2,0 2,0 1,0 1,0 0,0 0,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Slovenian inflation - 12-month average rate of change Euro area interest rate (main refinancing operations) Slovenian central bank interest rate (in % p.a.) Slovenian central bank interest rate (until 2006) Data source: Eurostat, Bank of Slovenia In 2004 (May 1), Slovenia and other 9 countries joined the EU and some of these countries (including Slovenia) immediately started their euro adoption process. Slovenian officials and government knew that if they wanted to adopt euro in their country, they had to continue lowering the inflation rate (and also inflation differential regarding euro area that had been still too high) and keep it down as long as possible. 52
Graph 2 Development of inflation differential between the euro area and Slovenia 8,0 Value of inflation differential between Slovenia and the euro area (in perc. points) 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Data source: Eurostat; own calculations But the officials did not want to raise interest rates too much in order not to threaten the growing economy. The only way was to convince Slovenian workers and labor unions to reduce their wage claims for a certain period of time (until successful euro area joining). In the end, they managed to do that and unofficial agreement between the government and labor unions came into effect. The result was as intended. As it can be seen from Graph 3, wage increase rates fell dramatically during 2004 to 2006 (almost up to no increase). That was a reason for further lowering the inflation rate and its stabilizing since second half of 2005, which was important for passing the inflation criterion of Maastricht nominal criteria. The inflation differential between Slovenia and the euro area had been also decreasing and reached its minimum value (almost zero) in the first half of 2006. In April and May 2006, when it came to preparing of Convergence report that was crucial regarding possible euro adoption, Slovenia managed to lower its inflation rate (based on 12-month average rate of change) to 2.3 %, which was slightly under the computed value of this criterion (2.6 %) 4. This meant that the most serious obstacle on a way to join euro area was relatively successfully tackled and solved. But the problems were about to come. 4 Source: 2006 Convergence report 53
Graph 3 Nominal wages increase development in Slovenia 118 Nominal wages growth index (same month of previous year = 100) 116 114 112 110 108 106 104 102 Data source: Eurostat, Statistical Office of the Republic of Slovenia The first problem was that Slovenia had to start adjusting its interest rates to the level of euro area. The aim was to minimize as much as possible the difference between interest rates in Slovenia and in euro area, because adopting euro also means adopting euro area interest rates. And the smaller the differences between these rates are, the smaller the possibility that a shock might occur is. The problem of Slovenia was that at the end of 2006, this difference was relatively high (about 1.5 percentage points) and there was a general trend in Europe of raising the rates 5 by central banks (as illustrated by the example of euro area). But Slovenian central bank didn t have much choice at that time. They knew about the inflation risk, but couldn t raise the rates because of the above mentioned difference. If they had raised the rates, they would have risked a shock by adopting euro area rates that would have been much lower than the Slovenian ones. The officials decided to minimize the risk of this possible shock and they tried to make the level of rates converge, although they knew about the inflation risk. Another problem was arising from the government deal with the labor unions. After successful euro area joining, there was no reason for them to keep their wage claims at a low rate. As it can be seen from Graph 3, at the beginning of 2007 the nominal wages started to rise again with pre-2004 rate again. This situation, together with the described interest rates adjusting process, influenced 5 Economies were doing well and there was a risk of their overheating and rising inflation rate. 100 2001 2002 2003 2004 2005 2006 2007 2008 2009 54
negatively the inflation development during 2007 and 2008. And there was no direct solution to this problem by euro adoption gave up Slovenia also its autonomous monetary policy so it was no longer able to raise the interest rates (and lower the inflation rate). By looking at Graph 1 is it obvious that the euro area interest rates (implemented by common monetary policy) remained practically unchanged from the mid of 2007 until the third quarter of 2008, which didn t constitute any positive environment for Slovenia. During that period they needed very much an interest rates raise to tackle the rising inflation. But common monetary policy is (and also has to be) based on preferring the interests of the whole area to the interest of single member economies. We can say that Slovenia (has) suffered from different development from other euro area member states. It is important to state the main reason that caused this unfavorable development after euro adoption in Slovenia. I call this reason economic unnaturalness in convergence process. As it is going to be described later, Maastricht convergence criteria don t evaluate the convergence process, they only determine whether the nominal criterion (in this case inflation criterion) has or hasn t been fulfilled. And it is up to each country which way regarding criteria fulfillment it choose. Slovenia went the wrong way. They didn t care much about what they were doing, the only aim was to adopt euro as early as possible and whatever the costs could be. The officials knew about the inflation problem that represented the biggest obstacle. But it was clear that without some untraditional procedure would it be very difficult to pass the inflation criterion. We could say that if there hadn t been the deal with labor unions, Slovenia couldn t have adopted euro at the beginning of 2007 because of too high rate of inflation. Much more favorable situation would have been to let the inflation rate decrease approximately to euro area level (or slightly above it) as a natural economic process, without any one-time short-term intervention like the deal with labor union was. But in this case would this probably have lasted much longer 6, but there would have been much less risk of unfavorable development in the future. The second possible risk that turned into a negative aspect was the development of central bank interest rates. When we look at their development during 2006, there was no sign of coherent development. Slovenian rates were above euro area rates, but they couldn t be raised anymore in order not to increase the existing interest rates differential. On the other hand, Slovenia s effort was to eliminate this differential as much as possible during 2006 to reduce the risk of possible shock after euro area interest rates adoption. But again, this has nothing to do with real economy convergence. During this period, Slovenia also needed to raise its interest rates to eliminate the risk of future inflation, but it decided not to, in order to eliminate the possibility of other shock 6 Current economic crisis caused lowering level of inflation in almost all countries. 55
connected with euro adoption. The right decision in this situation would be to postpone the adoption of single European currency until the interest rates don t show higher level of compliance in terms of their development and height. Economic cycles in all their form should be as much synchronized as possible. Unfortunately, it hasn t happen in case of Slovenia. The case of Slovakia Slovakian case in brief Slovakia also has had troubles resulting from underestimating of process of real convergence, maybe even with more serious long-term consequences. This problem includes other nominal convergence criterion than in case of Slovenia, the criterion of nominal exchange rate. It consists of two presumptions, whereas both have to be fulfilled. The first one refers to participation in the Exchange rate mechanism II (ERM II) for at least 2 years, the second one refers to stability of national currency against euro (national currency is pegged to euro in form of fixed rate and is allowed to move only in given fluctuation zone; country has to avoid any devaluation pressures revaluation of central parity to euro is yet allowed). Slovakia had been fulfilling both presumptions of this criterion for the needed two years, but its currency had had to face strong revaluation pressures during the second year and in the end had to revaluate twice against the central parity to euro. And the mentioned rising strength of Slovak currency had (and has) caused the problem. At the time of conversion rate fixation against euro (July 8, 2008) reached Slovak currency its historical maximum - it had never been so strength before. But as it turned out, it was only a short-term market fluctuation of all Central-European currencies that all reached their peaks. After several weeks, all of them (except for Slovak currency that was already fixed against euro) began to depreciate against euro. It was a clear example of economic unnaturalness, because at the time of fixation wasn t Slovak currency at its natural level (as can be seen comparing real and trend development in Slovakia on Graph 4). A strong conversion rate against euro has been beneficial especially for people living in Slovakia because it has strengthened their purchasing power outside Slovakia 7, but it hasn t been beneficial for almost all of the Slovak economy, because of its 80% orientation on export, especially to the euro area. This strong conversion rate disadvantages Slovak exporters (especially in comparison to exporters from other Central- and East-European countries, whose currencies depreciated strongly against euro in the second half of 2008 and at the beginning of 2009), which is even more negatively influenced by ongoing economic crisis. Graph 4 depicts the development of two CEE-countries currencies, the Czech and the Slovak Koruna 8. Both lines represent trend development for these 7 This development was supported by the populist Slovak government, which focused more on popular solutions for people than on corporations in Slovakia. 8 Same name in both countries. 56