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
198
200
143
150 119
98
100 80
85,1
50
83,5
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: 7. května
30. března
12,0
28. dubna
10,0
14
Řecko Irsko
% 8,0
Itálie 12
Portugalsko Skutečné zavedení
6,0 Španělsko
10
Itálie
Řecko
4,0
Francie
8
Německo 2,0 2008
6 4
Nevratné stanovení směnného kurzu
2
2009
2010
Francie Německo
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Zdroj: Národní centrální banky, H.-W. Sinn, ifo Institut, München.
2011
11 7 Březen 2011
Current Acount Balance to GDP Eurozona (2009) % HDP 5,6 5,4 4,9
Lucembursko Nizozemsko Německo Rakousko* Finsko Belgie
3,2 1,3 0,5
Slovinsko
-1,0 -2,2 -2,9 -3,2 -3,2 -3,9
Francie Irsko Itálie Slovensko Malta Španělsko
-5,4 -8,3
Kypr Portugalsko Řecko
-10,3 -11,2
-15 * 2008
-10
Zdroj: H.-W. Sinn, ifo Institut, München
-5
0
5
8 8
10
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
Španělsko
100
Německo
90 80
Irsko
70
-16%** -17% -24%
Itálie
60 50 40
Francie Velká Británie*
30 20 10
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
** Španělsko: IV. kvartál 2008. Zdroj: The* Economist and Social Research Institute; UK: Katastr nemovitostí, Německo: DESTATIS; Anglie a Wales. Francie: INSEE; Itálie: Banca d`Italia, H.-W. Sinn, ifo Institut, München
10 10 23. září 2009
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 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
GDP Česká republika 8 6.8
7
6
5.7 4.7
4.5
4.2
4
3.8 3.1
3.1 2.1
2
2
1.7
1.6 1
0 1996
-0.2 1997 1998 1999 -0.9
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010e
-2
-4 -4.7 -6
2011f
2012f
Current public deficit: Veřejný deficit Česká republika 0 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011f
2012f
-0.7
-1
-2 -2.4 -2.8
-3
-2.2
-2.8 -3.2
-3.2 -3.5
-4
-4 -4.8
-5
-5.8
-6
-7
-6.7
Public Debt of CZ Veřejný dluh Česká republika 45 42 40
40 37.6
35
34.4
30 27.1 25
28.6
28.9
28.4
28.3
27.9
28.7
23.9
20 15 10 5 0 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011f
2012f
Thanks for your attention:
