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European crisis

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Transcript of European crisis

Table of content
1. The European crisis
1.1. overview
1.2. phases
1.3. reasons and consequences

2. Policy responses
2.1. current status
2.2. target status:
A (Post-) Keynsian perspective

3. Conclusion

by Lola Attenberger (444802) and Igor Condric (444640)
Macroeconomics (200392),
Nina Dodig
Winter term 2014/2015
Hochschule für Wirtschaft und Recht Berlin
(Berlin School of Economics and Law)

The European crisis and policy responses: an assessment


Overview
consequence
most serious crisis since 1999
public debt - debt crisis
great recession
rescue measures
EU member countries
IMF
revealed flaws - economic policy framework
incomplete institutional architecture of EMU
Overview
today:
still paradigm
stability and growth pact

public deficits and debt

competitiveness

recovery?
Reasons and consequences
government bonds of Euro area member countries (debts)
Private consumption boom
Imbalance of current account
real estate bubbles high inflation rate (GIPS)

Reason and consequences
failure of the Stability and Growth Pact (SGP)
EMU = European monetary Union
panic
speculation motive
ask for external help - Troika
economic and social costs enormous
one lost decade
Reason and consequences
interconnection of public-, private- and foreign sector:
public sector balance + private sector balance + foreign sector balance = 0
one sector cannot run a surplus without affecting the other sectors of exactly the same magnitude in the opposite way
current account imbalance:
Conclusion
Thank you for your attention
Questions?

Policy responses: current status
economic policy framework (EU):
1. full transfer of competence to the Community
level for
monetary policy

2. rates-based coordination for
fiscal policy

3. "soft" coordination for other economic policies
Phases

start of the global

financial Crisis in 2007
:
- globalization of finance
- easy credit conditions
- housing bubble

European crisis and policy responses: an assessment
European crisis and policy responses: an assessment
European crisis and policy responses: an assessment
European crisis and policy responses: an assessment
European crisis and policy responses: an assessment
European crisis and policy responses: an assessment
European crisis and policy responses: an assessment
European crisis and policy responses: an assessment
Policy responses: current status
1. Monetary policy:
The European crisis and policy responses: an assessment
European crisis and policy responses: an assessment
Policy responses: current status
1. Monetary policy:
ECB:
inflation targeting - below 2 %
short term interest rate - instrument
no intervening in financial markets
European crisis and policy responses: an assessment
Policy responses: current status
2. Fiscal policy:
2009 European dept crisis

started
Greece and Irland
strongly limited by the SGP
fiscal consolidation (fusion)
high deficit high inflationary pressure
fiscal policy plays hardly a role
back to national legislation
austerity measures
Policy responses: current status
European crisis and policy responses: an assessment
3. Structural reforms:
Phases
beginning of 2010:
prevent end of the Euro
+
Greek
government default

Okt. 2010:

Irish
government bonds

Nov. 2010:
help of the Euro rescue fond

The European crisis and policy responses: an assessment
Phases
bonds increased for
Portugal

(2010/2011)
+
Spain

(in 2012)


got help by european rescue package


GIPS

The Economic crisis and policy responses: an assessment
deregulation of labor-, product and financial markets
economic adjustment requires removal of institutional barriers
internal devaluation
should bring back growth
Government should have prevented the crisis by investing and realize earlier
cutting off has been the wrong way
Union makes policy more difficult, e.g. interest rates
- Gap of the member countries
- competitiveness
fiscal austerity could not reduce budget deficits
surplus countries or ECB should have guaranteed for public debt
...
European crisis and policy responses: an assessment
Policy responses: target status
A Post- Keynesian perspective
European crisis and policy responses: an assessment
A Post-Keynesian perspective
European crisis and policy responses: an assessment
References
1. Central bank
should focus on
unemployment
in the short run
aim a monetary policy focusing on
low interest rates

regulation
and
supervision
of
financial markets
avoid credit-financed
bubbles

Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynsian Perspective, in: Hans-Böckler-Stiftung (Hrg.), in: Institut für Makroökonomie und Konjunkturforschung, Düsseldorf

Dodig, Nina/ Herr, Hansjörg (2014): EU policies adressing current account imbalances in the EMU: an assessment, in: Financialization, Economy, Society and Sustainable development – Large Collaborative Project, Social Sciences and Humanities

Hein, Eckhard/ Detzer, Daniel (2014): Coping with imbalances in the Euro Area: Policy alternitives addressing divergences and disparities between member countries, in: FESSUD - Financialisation, Economy, Society and Sustanable Development
European crisis and policy responses: an assessment
A (Post-) Keynesian perspective
2. income and wage policies
stabilization through fiscal
income and wage policies
nominal wages should grow according to growth of labor productivity
strong labor unions
+ government involvement

no deregulation
no flexibilization

European crisis and policy responses: an assessment
A (Post-) Keynesian perspective
3. fiscal policies
responsibility for real stabilization
+ full employment
+ equal distribution of disposable income

balanced current account government deficits
government dept supplies a save haven for private saving
taxation depending on income
A (Post-) Keynesian perspective
Euro Crisis and policy responses: an assessment
institutional setting of the EZB
stabilizing wages
+ reorganizing labor markets
back to regional policies: decrease imports
abandon the SGP
coordinated
expansionary fiscal
and monetary
policy
world financial order with fixed exchange rates
(Keynes 1942: international currency)

stable transfer of money
growth rate
compatible with a balanced national current account
Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective
Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective
Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective
Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective
Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective
Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective
Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective

European crisis and policy responses: an assessment
References
Images:

Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective

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Full transcript