AMF ANNUAL FINANCIAL CONVENTION MADRID, 21 NOVEMBER 2016 Franois - - PowerPoint PPT Presentation

AMF ANNUAL FINANCIAL CONVENTION – MADRID, 21 NOVEMBER 2016

François Villeroy de Galhau, Governor of the Banque de France

1

The European social model

2

48,4 43,0 38,0 42,0 36,3 31,3 30,0 35,0 40,0 45,0 50,0 55,0

Government spending

% of GDP in 2015

Note : (1) For the United States, 2014 data Sources : OECD; Eurostat; IMF

 High standards of public service  Relatively low levels of inequality

0,20 0,25 0,30 0,35 0,40 0,45 Less inequality More inequality

Gini coefficient after tax and transfers

in 2015

The need for reforms

3

Several European countries have succeeded in carrying out in-depth reforms:

 Sweden 1990s  Germany 2000s  Spain 2010s

Progress made in 4 key areas (Enterprise, Employment, Education and Expenditure reduction) is delivering results today.

1 2 3 4 5 6 7 8

Aggregate GDP growth

2014 and 2015 (%)

Source: Eurostat 1 2 3 4

France Italie Zone Euro Allemagne Espagne Suède

Aggregate growth in market sector employment, 2014 and 2015 (%)

France Euro area Spain Italy Germany Sweden

From the saving glut…

4

15 17 19 21 23 25 27 29 31 33 35 EME Savings

as a % of GDP

Source: IMF WEO database

EMEs’ saving glut in the 2000s…

…to the investment crunch

5

15 17 19 21 23 25 Euro area Investment Euro area Savings

as a % of GDP

15 17 19 21 23 25 27 29 31 33 35 EME Savings ADV Investment

as a % of GDP

Source: IMF WEO database

Euro Area

EMEs’ saving glut in the 2000s… and/or ADVs’ investment crunch now

Business investment

6

Source: Eurostat, BdF calculations.

Productive investment rate in the total economy

GFCF in machinery and equipment and intellectual property in % of value added, in value terms

8,0 9,0 10,0 11,0 12,0 13,0

Euro area Germany Spain France

A significant change in businesses’ behaviour

7

• 9
• 6
• 3

3 6 9 2007 2009 2011 2013 2015

Euro area net lending/net borrowing

percentage of GDP, 4-quarter averages

Households Non-financial corporations Financial corporations General government Euro area Source: Eurostat/ECB, latest observation: 20016Q2.

Economic levers

8

80% 17% 3%

expected demand uncertainty

• ther

Determinants of business investment growth

Contribution to the business investment slowdown, panel of 22 advanced economies, 1996-2014

Source: Matthieu Bussière, Laurent Ferrara and Juliana Milovich, ‘Explaining the recent slump in investment: the role of expected demand and uncertainty’, Banque de France WP n°571, September 2015.

Financial levers: Europe is lagging behind

9

NFC liabilities: net equity capital and financial debt

as a % of GDP Innovative investments New financing Equity capital needs

52% 80% 121% 64% 57% 42% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180%

Euro area United Kingdom United States

equity debt Source: Banque de France; data as of 31 Dec. 2015

Financial levers: cost of equity

10

Cost of equity in the euro area

in %

Source: Banque de France.

2 4 6 8 10 12 14 16

janv.-07 mai-07 sept.-07 janv.-08 mai-08 sept.-08 janv.-09 mai-09 sept.-09 janv.-10 mai-10 sept.-10 janv.-11 mai-11 sept.-11 janv.-12 mai-12 sept.-12 janv.-13 mai-13 sept.-13 janv.-14 mai-14 sept.-14 janv.-15 mai-15 sept.-15 janv.-16 mai-16

Risk premia (Long Term) 10-year Bund CoE (EA: FR + IT + SP + ALL)

Three steps towards economic union

11

A “Financing and Investment Union”

• Capital Markets Union + Juncker Plan + Banking Union
• Better channel abundant European savings (current account surplus
• f EUR 350 bn / year) towards productive investment across borders

A collective economic strategy

• Combine more structural reforms (France, Italy) and more fiscal

support (Germany)

• An institution fostering confidence: the euro area Finance Minister

In the longer term, a European fiscal capacity

• A euro area stabilisation tool: unemployment insurance scheme
• A means to finance certain « European public goods »
• The ability to issue common debt and even raise taxes