Recent developments in the euro area and challenges Second OECD-AMRO Joint Asian Regional Roundtable 19 July 2013 Eckhard Wurzel OECD Economics Department
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2nd OECD-AMRO Asian Regional Roundtable
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Recent developments in the euro area and challenges
Second OECD-AMRO Joint Asian Regional Roundtable
19 July 2013
Eckhard Wurzel OECD Economics Department
2
Interest rates had converged to very low levels
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5
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25
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3019
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91:Q
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1
GermanyIrelandItalyPortugalSpainGreece
% %
Note: 10-year government bonds. Source: OECD.
3
Government debt is high and increased prior to the crisis in some countries ...
Note: General government gross debt in the Maastricht definition. Source: OECD Economic Outlook 93 database.
0
20
40
60
80
100
120
140
160
180
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Greece
Italy
Portugal
% of GDP
4
... but not in others
Note: General government gross debt in the Maastricht definition. Source: OECD Economic Outlook 93 database
0
20
40
60
80
100
120
140
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Spain
Ireland
% of GDP
5
In several countries, household debt was on the rise Gross household debt per household disposable income
Source: OECD Economic Outlook 93 database.
0
20
40
60
80
100
120
140
160
0
20
40
60
80
100
120
140
160
Greece Italy Spain Portugal
% %
2000 2007 2010 2012
6
In a number of countries house prices went to record heights - and fell
Source: OECD Housing Prices database.
Real house prices
50
70
90
110
130
150
170
190
210
230
250
50
70
90
110
130
150
170
190
210
230
2501999Q1=100 1999Q1=100
Germany
Italy
Greece
Ireland
Portugal
Spain
Progress in fiscal consolidation is substantial
7 Note: Quantities show euro area averages. Source: OECD Economic Outlook 93 database.
0
20
40
60
80
100
120
0
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011 2012 2013 2014
% of GDP % of potential GDP
General government cyclically-adjusted deficit, left axisGeneral government gross financial liabilities, right axis
Relative unit labour costs within the area are now adjusting
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75
80
85
90
95
100
105
110
115
120
75
80
85
90
95
100
105
110
115
120
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
1999=100 1999=100
Germany
France
Spain
Greece
Portugal
Italy
Note: The figures shown are for the whole economy unit labour costs relative to unit labour costs in the rest of the euro area. Figures for 2013 and 2014 are projections. Source: OECD Economic Outlook 93 database.
9
Source: OECD Economic Outlook 93 database.
Intra-euro area trade imbalances have narrowed
Trade balances, % of GDP
-12
-10
-8
-6
-4
-2
0
2
4
6
-12
-10
-8
-6
-4
-2
0
2
4
6
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
% of GDP % of GDP
Italy Spain Greece Portugal Germany
Sovereign bond spreads have fallen but some are still elevated and volatile
10
-10
0
10
20
30
40
50
11-0
7-20
08
11-0
9-20
08
11-1
1-20
08
11-0
1-20
0911
-03-
2009
11-0
5-20
09
11-0
7-20
09
11-0
9-20
09
11-1
1-20
09
11-0
1-20
1011
-03-
2010
11-0
5-20
10
11-0
7-20
10
11-0
9-20
10
11-1
1-20
10
11-0
1-20
1111
-03-
2011
11-0
5-20
11
11-0
7-20
11
11-0
9-20
11
11-1
1-20
11
11-0
1-20
1211
-03-
2012
11-0
5-20
12
11-0
7-20
12
11-0
9-20
12
11-1
1-20
12
11-0
1-20
1311
-03-
2013
11-0
5-20
13
11-0
7-20
13
FRANCE
ITALY
SPAIN
IRELAND
PORTUGAL
GREECE
Yields relative to Germany, 10-year government bonds
Source: Datastream.
Credit conditions have diverged across countries
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2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
DEU NLD FRA IRL ESP ITA PRT GRC
%
2
4
6
8
10
12
14
16
18
20
22
DEU NLD FRA ESP PRT ITA IRL GRC
%
Cost of credit Average for 2013 first quarter
Non-performing loans Reference period: end 2011 or end 2012
Notes: Cost of credit is defined as interest rate on new loans to non-financial corporations. Non-performing loans are shown as a share in total total loans. Source: ECB , IMF, OECD.
Significant policy challenges remain
Significant policy challenges remain, comprising in particular: • Moving on with institutional reform at the level of the European Union, in particular with respect
to common mechanisms for supervision, resolution and restructuring in the banking sector
• Strengthening countries’ “ownership” in fiscal and economic surveillance processes
• Continuing structural reform within countries that foster intra-area rebalancing, potential growth, employment creation and social inclusion
• Continuing fiscal consolidation, based on credible medium-term plans linking improvements in public sector finances to growth-friendly and equitable structural reform.
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