Policy Response to the Crisis: How National Can It Be in CEE? Ivan Lesay Institute of Economic Research, Slovak Academy of Sciences Ministry of Finance.

Policy Response to the Crisis: How National Can It Be in CEE?

Ivan LesayInstitute of Economic Research, Slovak Academy of Sciences

Ministry of Finance of the Slovak Republic

Debt, Finance and Economic Crisis: Consequences and Solutions

Eurodad-Glopolis International Conference, Prague, June 3, 2013

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Fiscal Profligacy?Government deficit Current Account Financial Account

GR -5,4 PT -9,3 PT 7,9PT -4,2 GR -8,4 GR 7,4IT -2,9 ES -5,8 ES 5,4FR -2,7 IE -1,9 IE 2,4DE -2,3 IT -1,3 IT 1AT -1,6 FR 0,5 FR -0,2NL -0,6 AT 1,7 AT -0,8BE -0,3 BE 3 BE -2,8ES 0,5 DE 3,2 DE -4,1IE 1,5 NL 5,5 FI -4,4LU 2,3 FI 6 NL -4,6FI 4,2 LU 10,6 LU -11

% of GDP, 2000-2007 avg.Eurostat

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Living Beyond Our Means? I.

DG Ecfin AMECO database

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201395

100

105

110

115

120

125

130

135

140

Nominal ULC

Germany

France

Slovakia

GISP avg.

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Living Beyond Our Means? II.

DG Ecfin AMECO database

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201390

92

94

96

98

100

102

104

Real ULC

Germany

France

Slovakia

GISP avg.

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European Rescue: Public Funds Saving Private Assets

Public intervention makes it easier for private investors to reduce their exposure in the Eurozone peripheries

Greece’s current account deficit and its external financing (cum. 2008-2011, US billion)

International Monetary Fund

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European Remedy: Austerity and Structural Reforms (4P Report) I.

Michal Polak, MF SR

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European Remedy: Austerity and Structural Reforms II.

Michal Polak, MF SR

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European Remedy: Austerity and Structural Reforms III.

Michal Polak, MF SR

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European Limits to National Anti-Crisis Responses

Eurozone MS – missing central bank tools

◦ no exchange rate cushion

◦ no interest rate policy

◦ no last resort lender

◦ ECB: „we don't have a mandate“

EU: Stability and Growth Pact (Six-Pack, Two-Pack)

◦ Medium Term Objective

◦ Excessive Deficit Procedure

EU25: TSCG (Fiscal Compact)

◦ Automatic Correction Mechanism

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CEE Development Models: SK, SI, EE, CZ

Type of capital inflows ◦ SK, CZ productive FDI vs. EE, SI ext. credit to non-tradables

Current account position◦ CZ (-); EE (↑ but risk); SK, SI (balanced)

Private indebtedness◦ SK (↓↓); CZ (↓); EE (↑↑ but adjusted); SI (↑)

Financial sector condition◦ CZ, SK (bailed out); EE (foreign); SI (↓)

Dominant sectors in economies◦ SK, CZ (export ind.); EE (services); SI (inbtw.)

Public indebtedness: 50 % GDP (EE 10 %)

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Summary and conclusions

National anti-crisis responses possible (even desirable) but...◦National limits – economic development model

path dependence

◦ (Eurozone) EU (monetary) fiscal limits

Full-fledged anti-crisis response only if coordinated at the European level◦End austerity, admit the systematic nature of the

crisis

◦Ballanced development, productive (green) investment

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THANK YOU FOR YOUR ATTENTION

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