EUs økonomiske og politiske krise og Norge... innledning til diskusjon Seminar Europapolitisk seksjon, Utenriksdepartementet Fredag 20. September 2013 kl.0915- ca.11 Professor Ole Gunnar Austvik Handelshøyskolen BI / II: Norsk Utenrikspolitisk Institutt (NUPI) www.oga.no Both technologial change in production and communication and political change towards more liberal trade regimes contribute to increased international economic integration. www.oga.no 2 1
Benefits and costs of international trade Trade creates interdependence of each others markets and production. Creates both peace and conflict. The trade creation is a win-win on the country level. Peace. Assymetry: Some wins more than others Countries that are very different from other countries on the supply side gain the most, but will also need more restructuring than countries that are more similar to the others. The trade restructuring is a win-lose within each country, where the winners gain more than the losers. Conflict. Gains and losses within a country can be both small and substantial. Redistribution across individuals, sectors, geography. Compensation? The more flexible (elastic) you are the more you gain... and vice versa. Important to have time to restructure change to new sectors in production and by geography. Some are less flexible than others. www.oga.no Other issues than economics are also important and may conflict with the economic ones. Short and Long-term Effects of Trade Lliberalization The Production Possibility Curve and Time to Restructure Y Production possibility curve Increased welfare A C B X 2
Økonomisk integrasjon og politisk integrasjon Økonomisk integrasjon fordrer at internasjonale handelshindringer bygges ned (toll og evt substitutter for toll). Den økte konkurrransen mellom land presser priser og kostnader ned, og de blir mer like på tvers av land (både produkt- og faktorpriser) Konkurransen presser også kostnadsdrivende politikk (avgifter, reguleringer etc) ned : race-to-bottom (RTB) -> Behov for minstesatser på politikk som berører konkurranseforhold dvs harmonisering også av innenrikspolitikken mellom land. Jo dypere integrasjon desto mer innenriks politikkharmonisering for at økonomiene skal integreres. -> Nasjonale handlingsrom for økonomisk politikk begrenses www.oga.no The economic and political integration of the European Union + other policy areas EU before1958-68 WTO EU before1993 The Single Market 1993? Economic and Monetary Union (Maastrict) 1999-2002 Amsterdam treaty 1999 > Lisbon 2007? * Examples: VAT, excise taxes, (usually minimum taxes), competition rules, product specifications, social policy, harmonization of education, environmental standards, public purchases, regulation of labor standards, regional policy etc 3
Optimal Degree of Common Regulations Benefits and Costs Maximal net benefits Benefits Costs R Min R Opt R* R Max Amount of common regulations Macroeconomics and the euro 4
Effects of a fixed exchange rate and a common currency Benefits (microeconomic) Removes currency uncertainty and exchange costs Disadvantages (macroeconomic) Loss of independent monetary policy ECB ESCB The optimum currency area Countries with the most similar economic structure (cycles). Does the euro-zone constitute an optimal currency area? Four main criteria for a successful currency union i.e. for an optimal currency area (OCA) MICROECONOMICS: Labor mobility. Physical ability to travel (visas, workers' rights, etc.), lack of cultural barriers to free movement (such as different languages) and institutional arrangements (such as superannuation transferred throughout the region) (Robert A. Mundell 1961). EU: Can people move quickly across sectors, professions, cultures and borders? Capital mobility and price and wage flexibility. Market forces of supply and demand automatically distribute money and goods to where they are needed. EU: In practice this does not work perfectly when there is no true wage flexibility. There is however capital mobility. MACROECONOMICS: A risk sharing system with a fiscal transfer mechanism to redistribute money to areas and sectors which have been adversely affected by the first two characteristics. Tax redistribution to less developed countries/regions. However, it is politically difficult to implement as the better-off regions and countries rarely give up their revenue easily. EU: No common or coordinated fiscal policy. Similar business cycles. Economic integration makes counties experience booms or recessions together and a shared central bank can promote growth in downturns and contain inflation in booms. Should countries in a currency union have idiosyncratic business cycles (experience asymmetric shocks), then optimal monetary www.oga.no policy may diverge across countries and union participants may be made worse off under a joint central bank..eu: Similar policy is suitable when countries are in similar situations or are similar. This is in 5
The Maastricht - criteria The Maastricht criteria of 1991 (also known as the convergence criteria) are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union (EMU) and adopt the euro as their currency. 1. Inflation rates: No more than 1.5 percentage points higher than the average of the three best performing (lowest inflation) member states of the EU. 2. Government finance: 2.1 The ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3%.Only exceptional and temporary excesses would be granted for exceptional cases. 2.2 Government debt to GDP must not exceed 60% 3. Exchange rate: Applicant countries should have joined the exchange-rate mechanism (ERM II) under the European Monetary System (EMS) for two consecutive years and should not have devalued its currency during the period. 4. Long-term interest rates: The nominal long-term interest rate must not be more than 2 percentage points higher than in the three lowest inflation member states. a stable internal and external economy before entering the euro Stability and Growth Pact (SGP) The pact was adopted in 1997 so that fiscal discipline would be maintained and enforced in the Economic and Monetary Union (EMU). To prevent deficit budgeting. A surveillance system to detect imbalances in public finances. Member states adopting the euro have to meet the Maastricht convergence criteria, and the SGP ensures that they continue to observe them. 1. Government deficit to gross domestic product (GDP) must not exceed 3%. 2. Government debt to GDP must not exceed 60% Various procedures / reaction mechanisms were established when countries run deficits larger than the Maastricht Treaty prescribed in order to restore balance and / or issue fines, incl. deposits, requirements to change policy and fines. 6
Many countries have a public debt larger than what is allowed in the Maastricht criteria, including the big ones Most countries run a public deficit larger than what is allowed in the Maastricht criteria, including the big ones 7
The current account (driftsbalansen) deficits are, by definition, identical to the respective capital imports that countries absorbe. Current account deficits and capital flows are jointly determined by economic forces. The causal origin of an imbalance can in principle come from the goods and services, as well as from the capital markets. Current account = balance of payments + capital account. Driftsbalansen = Handelsbalansen + rente- og stønadsbalansen = Kapitalregnskapet Current account balances 8
Interest rates spread: Net yields on 10-year goverment bonds Because of the exchange rate risks, interest rates were widely spread before the irrevocable establishment of exchange rates (1998) in the euro zone. During this phase, the vanishing depreciation risk was associated with a vast underpricing of default risk. This phase ended in autumn 2008, when after the demise of Lehman Brothers, doubts about the creditworthiness of individual European countries emerged. Interest rates have spread again since the beginning of the crisis because investors reckon with different default probabilities among the euro countries. Exorbitantly high interest rates must now be paid by some GIPS countries. The extensive EU rescue measures were caused by rapidly rising interest spreads on government bonds. The similarity between pre-euro interest dispersion and today s dispersion is striking. In the past interest rates diverged due to the fear of depreciation; now they do so because of the fear of default. Source: The EEAG Report on the European Economy, CESifo, Munich 2012 Euro area unemployment Source: Early Warning (IMF estimates) 9
Youth (15-25) unemployment in the EU Source: Real-World Economics Review 2012 The European debt crisis The European debt crisis followed the US financial crisis in 2008 with a delay of one and a half years. While its first signs were visible in November and December of 2009 when the rating agency Fitch downgraded Ireland and Greece, it culminated on 28 April 2010 when the intra-day interest rate for twoyear Greek government bonds peaked at 38 percent. Since then capital markets have been extremely unstable, showing signs of distrust in the creditworthiness of the GIIPS countries: Greece, Ireland, Italy, Portugal and Spain. The European Financial Stabilization Mechanism (EFSM): An emergency funding program reliant upon funds raised on the financial markets and guaranteed by the European Commission using the budget of the European Union as collateral. It ran under the supervision of the Commission and has aimed at preserving financial stability in Europe by providing financial assistance to member states of the European Union in economic difficulty. The Commission fund, backed by all 27 European Union members, had the authority to raise up to 60 billion. A separate entity, the European Financial Stability Facility (EFSF), was authorized to borrow up to 440 billion. The EFSF was established on 8 September 2010, right after the Greek crisis became eminent. The European Stability Mechanism (ESM) succeeds the temporary EFSF and EFSM. The ESM is an international organization located in Luxembourg. The ESM was established on 27 September 2012, and will function as a permanent firewall for the eurozone with a maximum lending capacity of 500 billion. 10
Solutions? To solve the debt problem does not solve the underlying long-term economic problem. The growth and unemployment problem must also be solved A common/coordinated fiscal policy (the neo-functional solution)? Internal devaluation Massive restructuring of the affected economies takes place - followed by political and social unrest Possibility for Keynesian solutions on the euro level Back to national currencies for some countries (the inter-governmental solution)? External devaluation. Not so massive restructuring.. Problems with handling debt remain. The financial system must better reflect the real economy. Political desire and ideology on the one hand and diverging interests and situations on the other challenge the EU ability to make (real economy) decisions. Worst case: an uncontrolled breakdown of the system. Europe in concentric circles www.oga.no 11
www.oga.no What kind of financial system do we need? Internationally, politicians seem to accept (after the financial crisis of 2008 and now the euro crisis) that the existing international financial system must be improved. It does however not seem that the will to change the system as much that it reflects the new economic realities is there yet. The regulatory problem - the worst clean up of the current system. It may take a long time to change the system more profoundly as long as extensive capital injections last. Only when a new major crisis comes, the political will for a more comprehensive system revision may come? The structural problem. www.oga.no 12
Viktige egenskaper ved et internasjonalt finanssysstem Et system av internasjonalt avtalte regler, institusjoner og prosedyrer som gjør flytting av kapital mellom land sikker, forutsigbar og effektiv. Mikroøkonomiske kostnader ved valutausikkerhet Internasjonalt vare- og tjenestebytte (handel) Investeringer Systemet kan bestemmes ovenfra gjennom visjonære, multilaterale avtaler Ex: Bretton Woods 1944-1971 (faste kurser. USD - gull). USD = 7.14 NOK. Diskrete endringer av kursen. Kan også vokse fram over tid som et resultat av enkeltavtaler mellom land Ex: Gullstandarden 1870-1914 Inkl. Den skandinaviske myntunionen 1873/75-1914) Fordel: Automatisk stabilisator : A-B<0 -> M ned -> r opp -> p ned -> A-B>0 Uten et godt fungerende internasjonalt finanssystem blir realøkonomien ustabil Ekstremt: Mellomkrigstida 1919-1939 Mer moderat: Post / modifisert Bretton Woods 1971-nå -> Omfattende sikring av valutatransaksjoner, spekulasjon Finansielle transaksjoner kan bli viktigere enn de realøkonomiske Enten gjennom risikoaversjon eller som risk lovers -> Politiske, ideologiske og sosiale spillovereffekter Så lenge det går bra kan finansielle forhold bestemme mye av politikken Går det dårlig må politikken redde systemet Mellomkrigstida: Roosevelt, Keynes, Hitler.. Til og med GW Bush intervenerte i 2008 Nå: Ønsker om systemrevisjon Nye Bretton Woods / Bretton Woods II 2003/2008-> Noen virkninger for Norge av eurokrisen: 1. Handel: A: Eksport : Etterspørsel i utlandet ned først i volum og etterhvert i priser Appresiering av NOK gjør norske priser høyere. Samtidig kan inflasjonen i euroområdet øke. B: Import: Evt. appresiering gjør importen billigere. Importkonkurrerende næringer også utsatt. 2. Bankvesenet. Norske banker har lånt ut til utenlandske banker som kan få betalingsvansker/gå konkurs når deres utlån ikke betales. -> Renta opp 3. Oljefondet. Det norske oljefondet er basert på at internasjonale kapitalmarkeder / finanssystemet skal fungere. Aksjer (privat) 60%, obligasjoner (statlige) 40 %, nå også 5 % eiendom (realverdier). Dersom system-/finanskrasj: De som eide aksjer i russisk jernbane før første verdenskrig hadde bare samleverdien av aksjebrevene som verdi etterpå. Verdiene tok lang tid å ta seg opp igjen etter krisen i mellomkrigstida. Forskjell Norge og andre land: 1. Mindre eksponert for etterspørselssvikt enn andre europeiske land pga eksportstrukturen. 2. En svært rik stat har ingen utenriksøkonomiske problemer. Kan bruke penger til å etterspørre mer (anlegg, infrastruktur osv) -> Store importlekkasjer. Økt innvandring. 13
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