欧洲债务危机： 原因，解决方法及对中国的影响

1. 欧洲债务危机：原因，解决方法及对中国的影响欧洲债务危机：原因，解决方法及对中国的影响 Eurozone Crisis：Origin, Solutions and Impact on China Michele Geraci （杰拉奇） Head of China Program - Global Policy Institute Senior Research Fellow and Adjunct Professor of Finance -Zhejiang University Visiting Assistant Professor of Finance – University of Nottingham, Ningbo 1

2. Head of China – Global Policy Institute, London Senior Research Fellow and Adjunct Professor of Finance – Zhejiang University Visiting Assistant Professor of Finance – Nottingham University Electronic Engineering – Graduate degree, University of Palermo (University College London) Master in Business Administration (MBA) - Massachusetts Institute of Technology, Sloan School of Management Personal Introduction Global Policy Institute 2 2

3. Merrill Lynch Investment Banking – Associate Donaldson, Lufkin and Jenrette – Vice President, Head of Latin America and Co-Head of Europe Telecom Research Bank of America – Director, Co-Head of Europe Telecoms Pali Capital – Managing Director, Head of Europe Telecoms Schroders Asset Management – Head of European Media, Telecom Personal Introduction Global Policy Institute 3 3

4. Agenda • Introduction to the EU and the Eurozone • Reasons for the current crisis • Impact on China • Recent Events • Q&A 4

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11. Other Data 11

12. Europe：brief history • 1945 - End of WWII • 1952– Treaty of Paris signed (France, Italy, Holland, Belgium and Germany): European Community formally established • 1958– Treaty of Rome signed • 1973 – England joins • 1992：Treaty of Maastricht – path to Eurozone • 2012：27 countries are part of the EU。 12

13. Message 1： Not Long after the end of WWI, Europe had been re-united 13

14. EU System • Free flow of goods and services • Tax-free trade area • Free flow of people • No custom, no need for ID card (ex Schengen) • All citizens from any of the 27 countries enjoys same rights and befenits Message2:EU basically looks as if it was a single country 14

15. Eurzozone:’99First Stage 15

16. Eurozone ‘01：Greece joins 16

17. Eurozone ‘12：17 countries 17

18. Convergence Criteria：趋同标准 • If a country wants to join the Eurozone, it must fulfill certain conditions • 如果一个国家想加入欧元区，他就必须满足几个条件。 18

19. Convergence Criteria：趋同标准 • Inflation Rate （通货膨胀）: <1.5% higher than av. of best three other countries • Government Deficit/GDP (政府赤字） <3% • Government Debt/GDP （政府债务与GDP比率）<60% • Interest Rates (利息率）< 2% more than three lowest countries 19

20. Inflation 20

21. Inflation 21

22. Government Deficit 财政赤字 22

23. Government Deficit 23

24. Government Deficit GRE, ITA, POR almost always exceed criteria 24

25. Debt/GDP Spain: RE bubble four countries“always”exceeded criteria 25

26. Debt/GDP Attention：France and Germany are not too ‘in good shape, either 26

27. Debt/GDP Eurozone and EU members performance: UK??? 27

28. Interest Rates 28

29. Convergence Criteria：met or not？ • Inflation：in 2010， 12 countries did not meet criteria！ • Gov’t Deficit：in ’09 and ‘10，15 countries did not meet criteria! • Debt/GDP: Greece and Italy ratio always above: EU average always above criteria! Message 3:Eurozone：basically, never met, almost never, at least 29

30. Why Greece so serious？ Message 4：“reciprocal help”: this concept is now in doubt 30

31. Crisis: Soft reasons • 27countries • 27electoral democracies，54 different points of view！ • Culture, history, technology, language，custom, food，economic structure，social structure, etc..not at all the same！ Message 5：Unification process not easy 31

32. Crisis“hard”reasons • Relaxed lending practices • Excessive investment • Risk assessment not proper • Global Imbalances • Improper fiscal policies • Socialise losses • Contagion Problems • Single Currency!!! 32

33. Trade Imbalance, leading to protectionism Accumulation of FX Reserves Reaganomics Benefits to Chinese exports Financing US consumption Purchase of US bonds 33

34. Crisis：3 examples • Ireland Excessive Inv，Real Estate • Greece Civil Servants and salaries • Italy loss of competiveness，low efficiency ratios 34

35. Reasons for the crisis We must acknowledge that Europe faces two distinct problems: Sovereign Debt crisis and Eurozone Crisis • The first one is due to individual countries bad fiscal policies • The second is due to structural problems。 Message 6：Debt crisis and Eurozone crisis are two different things 35

36. Conditions for monetary area • Relax the mandate of the ECB • 财政整合 – Fiscal Integration • Fully implement people’s mobility (Dakota) • 。。。？？？ 36

37. Possible Solutions • Generally, Central banks look after inflation and economic growth: a balanced mandate, but.. • ECB’s only responsibility is price stability (CPI)： • Unrealistic goal （17countries） • ECB is not concerned with stimulating growth • AND, even worse, When you have debt you should push inflation up, but that is not what the ECB does 37

38. Possible Solutions • Eurozone has no fiscal integration • currently, each country look after its own budget • What about China and the US？ • A German tax envoy goes to Greece to collect taxes and decides to spend the money in Berlin • Can people accept this？ 38

39. Possible Solutions 3. Realize full people mobility • Easy in theory, not in practice • Language, culture, society, political systems • What about China and the US？ • Dakota can be emptied, but Belgium? 39

40. Possible Solutions 4. Break up of the EURO！ • Or, reduce the scope • Re-introduce individual currencies • Every country can choose its own monetary policy（print money） • Can depreciate currency，stimulate exports (Short term is fine) • Painful in the short term ， but successful in the long term PIIGS can leave, or Germany can leave EUROzone 40

41. Possible Solutions Message 7：Sacrifice the Euro to Save the European Union 41

42. 欧元区已经解体了 42

43. Impact on China • The Chinese economy, as a whole, is becoming less dependent on exports…apparently • This year, there maybe a trade deficit Therefore… A slowing demand from Europe for Chinese goods is not going to have a big impact on Chinese economy – True? 43

44. Key points on the RMB • Countries have sovereign right to set it exchange rate as they wish (US, Italy, UK) • No one knows the real value of the RMB • The impact of a possible revaluation of RMB on US exports in far from clear, • But, impact on China can be negative 44

45. Plaza Accord and US$ devaluation 45

46. Impact on China 46

47. Impact on China 47

48. Impact on China • China should come to the rescue of Europe • Not for charity, but to protect it’s own interest • Chinese policy makers may underestimate this problem Message 8：Chinese policy makers must pay closer attention 48

49. Summary 1 Not Long after the end of WWI, Europe had been re-united 2 EU basically looks as if it was a single country 3 Eurozone：basically, never met, almost never, at least 4 “reciprocal help”:this concept is now in doubt 5 Unification process not easy 6 Debt crisis and Eurozone crisis are two different things 7 Sacrifice the Euro to Save the European Union 8 Chinese policy makers must pay closer attention

50. 最近的时间 • 2011 年10月份：欧盟高峰会：新的财政条约 • 2012年三月份：希腊新的纾困 • 2012年四月份：法国大选 50