The Euro’s Growing Pains
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The Euro’s Growing Pains Antonio de Lecea European Union Delegation to the United States of America ________________________________________________________________________ The Streit Council for a Union of Democracies SAIS May 4, 2010. Outline. A Greek accumulation of policy mistakes…

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A greek accumulation of policy mistakes

The Euro’s Growing PainsAntonio de LeceaEuropean Union Delegation to the United States of America________________________________________________________________________The Streit Council for a Union of DemocraciesSAISMay 4, 2010


A greek accumulation of policy mistakes

Outline

  • A Greek accumulation of policy mistakes…

  • …an incomplete Euro Area enforcement and crisis resolution

  • …both now being tackled…

  • …for the benefit of the Euro Area and the global economy.


A greek accumulation of policy mistakes

Death throes?

The euro:

It can’t happen,

It’s a bad idea,

It won’t last.

US economists on the EMU, 1989-2002

by Lars Jonung and Eoin Drea

Economic Papers No. 395 / December 2009


A greek accumulation of policy mistakes

1. An accumulation of policy mistakes in Greece

  • Poor fiscal policies and governance

  • Declining competitiveness

  • Poor statistics

    led to miss many opportunities from entry in the Euro Area


A greek accumulation of policy mistakes

Poor fiscal policies

  • Bloated public employment

  • Poor procurement rules

  • Poor revenue performance

  • Serious expenditure slippage in 2009

  • Poor fiscal accounting


Deteriorating competitiveness

Deteriorating competitiveness


A greek accumulation of policy mistakes

2. Incomplete Euro Area governance

  • Fiscal surveillance initially focused on nominal deficits

  • Reviewed in 2005 to bring more economic rationale

  • And expanded in 2009 to take account of structural aspects

  • Though assessed on the basis of statistics not sufficiently surveilled

  • Crisis resolution mechanisms available for non-Euro Area members (and third countries) but not for Euro area countries.


A greek accumulation of policy mistakes

Markets did not price risk properly for a long while

Greek spreads on 10 year benchmark bonds to German Bund


A greek accumulation of policy mistakes

3. Now being tackledby Greece …

  • On 15 January commitment to reduce deficit by 4% in 2010 (both revenue and expenditure).

  • On 3 March additional 2% deficit reducing measures for 2010


A greek accumulation of policy mistakes

3. Now being tackledby Greece …


A greek accumulation of policy mistakes

3. Now being tackledby Greece …

  • On 15 January commitment to reduce deficit by 4% in 2010 (both revenue and expenditure).

  • On 3 March additional 2% deficit reducing measures for 2010

  • Ambitious tax reform launched in March

  • Statistical data reviewed in April

  • On 2 May Greek Government approves extraordinary adjustment programme (negotiated with the EC, ECB, and IMF) for 2010-2014, with further consolidation for 2010 and specification of fiscal measures and structural reforms for 2010- 2012


A greek accumulation of policy mistakes

3. …and by the EU

  • On 16 February package of enforcement measures (fiscal, structural, statistical) addressed to Greece

  • Euro Area Leaders and Finance Ministers commitment to support stability of the Euro Area with financial support alongside the IMF.

  • Proposals for enhanced economic policy coordination (May 12)

  • Enhanced EC (fiscal, structural) surveillance in close cooperation with ECB, IMF

  • Proposal for a more permanent crisis resolution mechanism for the Euro Area

  • And an ambitious framework of structural reforms (Europe 2020)


A greek accumulation of policy mistakes

4. for the benefit of the Euro Area and the global economy

  • Ensure stability in the Euro Area

  • to enable the EU to focus on crisis recovery,

  • increasing growth potential,

  • contributing to a reinvigorated, balanced global growth,

  • a sound reform of global financial regulation,

  • and an effective and legitimate global economic governance.


A greek accumulation of policy mistakes

Conclusion

Greece and some Euro Area countries are not the only ones with large fiscal and external imbalances


A greek accumulation of policy mistakes

Conclusion

  • Greece, and other members of the Euro Area family, will still have growing pains.

  • But they will grow strong.

  • The euro is not a substitute for sound policies.


A greek accumulation of policy mistakes

Conclusion

Also state and local finances are a challenge

  • Its governance must still be perfected.

  • But it will certainly outlive us.


Thank you for your attention antonio de lecea

Thank you for your attentionAntonio de LECEA


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