Greece and the euro area going forward Yannis Stournaras Governor, - - PowerPoint PPT Presentation

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Greece and the euro area going forward Yannis Stournaras Governor, - - PowerPoint PPT Presentation

Feb 23, 2024 523 likes •770 views

Greece and the euro area going forward Yannis Stournaras Governor, Bank of Greece 4 March 2017 Greece: Current Juncture The Greek economy is at a turning point Growth turned positive in 2016 Q2 and, contrary to initial forecasts, it turned

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SLIDE 1

Greece and the euro area going forward

Yannis Stournaras Governor, Bank of Greece 4 March 2017

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SLIDE 2

Greece: Current Juncture

2

The Greek economy is at a turning point

  • Growth turned positive in 2016 Q2 and, contrary to initial forecasts,

it turned out positive for the year as a whole (0.3%)

  • Recent softening of economic indicators relates to delays in the

closing of the second review.

  • Closure would reduce uncertainty and allow the economy to move

quickly to a faster growth path.

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SLIDE 3

Significant fiscal consolidation

3

* as published in 2017 Budget Report. Source: Ministry of Finance Source: European Commission, European Economic Forecast Winter 2017

  • 10%
  • 8%
  • 6%
  • 4%
  • 2%

0% 2% 2009 2010 2011 2012 2013 2014 2015 2016*

General Government Primary Balance

(% of GDP, programme definition)

2 4 6 8 10 12 14 16 18 Greece Ireland Portugal Cyprus Spain Euro Area

Change in cyclically-adjusted primary balance 2009-2016

(% of potential GDP)

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SLIDE 4

Significant current account adjustment

4

Source: AMECO

  • 18
  • 16
  • 14
  • 12
  • 10
  • 8
  • 6
  • 4
  • 2

2 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Current account balance

(% of GDP)

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SLIDE 5

Restoration of competitiveness

5

Source: ECB (Harmonized Competitiveness Indicators) Source: ECB (Harmonized Competitiveness Indicators)

80 90 100 110 120 130 140 150 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Relative Unit Labour Costs (Inverse of competitiveness)

(index: 2000=100; against euro-area countries plus 21 trading partners) Germany Ireland Italy Portugal Spain Greece

90 95 100 105 110 115 120 125 130 135 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Relative prices (Inverse of competitiveness)

(index: 2000=100; against euro-area countries plus 21 trading partners) Germany Ireland Italy Portugal Spain Greece

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SLIDE 6

Rebalancing the economy

6

Note: Relative prices are based on (implicit) price deflators of value-added. Tradeables: agriculture, industry, business and financial services, telecommunications and services related to tourism (transport and accommodation and restaurants). Non-tradeables: else except public administration and non-market services.

Sources: Eurostat (National Accounts ESA 2010) and BoG calculations

0.9 1.0 1.1 1.2 1.3 2007 2008 2009 2010 2011 2012 2013 2014 2015

Relative size of tradeable to non-tradeable sector

(index: 2010=1) Gross Value Added Prices Volume Employment

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SLIDE 7

Greater openness: exports of goods and services

7

Real exports of goods

(index 2009=100)

Real exports of services

(index 2009=100)

Source: Bank of Greece (BoP statistics) and Eurostat (for EA 19)

60 80 100 120 140 160 I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I IIIIIIV I IIIII 2009 2010 2011 2012 2013 2014 2015 2016

Greek exports BOP Greek non-oil exports BOP EA19 exports BOP

60 80 100 120 140 160 I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I IIIIIIV I IIIII 2009 2010 2011 2012 2013 2014 2015 2016

Greek receipts from services Greek receipts from travel Greek receipts from services ex shipping EA19 receipts from services

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SLIDE 8

Stock disequilibria remain: unemployment

8

Output vs. employment growth

(annual % change)

5 10 15 20 25 30 Ι ΙΙ ΙΙΙ ΙV Ι ΙΙ ΙΙΙ ΙV Ι ΙΙ ΙΙΙ ΙV Ι ΙΙ ΙΙΙ ΙV Ι ΙΙ ΙΙΙ ΙV Ι ΙΙ ΙΙΙ ΙV Ι ΙΙ ΙΙΙ ΙV Ι ΙΙ ΙΙΙ ΙV Ι ΙΙ ΙΙΙ ΙV Ι ΙΙ ΙΙΙ 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Unemployment (%)

1996 1997 1998 1999 2000 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

  • 10
  • 8
  • 6
  • 4
  • 2

2 4 6

  • 10
  • 5

5 10 Employment growth (LFS) GDP growth Recovery (high elasticity) Pre-crisis (low elasticity) Crisis

Source: Labour Force Survey

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SLIDE 9

Non-performing loans

9

Source: Bank of Greece

Measures taken

  • BoG guidelines for enhanced

governance framework

  • Set of ambitious operational targets

agreed by banks and BoG/ECB, NPEs’ reduction by 40% by 2019

  • New households’ insolvency law
  • Amended Code of Civil Procedure
  • Enhanced capacity and efficiency of

judicial system

  • Setup of a secondary market for

NPLs. Ongoing initiatives

  • Revision of out-of-court workout
  • Revision of bankruptcy law
  • Legal protection
  • Creation of a Credit Score Bureau

and debt info/counseling centres

  • E-auctions
  • 6
  • 1

4 9 14 19 24 29 34 39 I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIII 2008 2009 2010 2011 2012 2013 2014 2015 2016

Greek commercial banks – NPL ratio (%)

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SLIDE 10

General government debt

10 5.4 10.1 5.3 3.0 3.7 9.1 3.9

  • 1.3

1.9 2.1

  • 35.6
  • 4.6
  • 4.0
  • 12.1

7.1 12.3 20.7 19.3 13.3 6.7 5.9

  • 40
  • 30
  • 20
  • 10

10 20 30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Annual change (in % of GDP)

primary deficit deficit-debt adjustment snowball effect Change in debt ratio

* 2017 Budget Report Source: ELSTAT and Ministry of Finance

(- surplus)

23.5

  • 52.4

82.5 53.6

  • 60
  • 40
  • 20

20 40 60 80 100

  • 60
  • 40
  • 20

20 40 60 80 100

2010-2016*

Cumulative change 2010-2016

Snowball effect (i – g): the main driver

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SLIDE 11

Short-term economic outlook

11

  • Strong positive growth rates are expected over the short and

medium term for as long as the output gap closes.

  • Consumption continues to rebound, driven by the increase of

employment.

  • Investment and exports increase as confidence is restored and

credit conditions improve.

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SLIDE 12

State budget execution

12

Source: Ministry of Finance.

  • 2,000
  • 1,000

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Jan Jan-Feb Jan-Mar Jan-Apr Jan-May Jan-Jun Jan-Jul Jan-Aug Jan-Sep Jan-Oct Jan-Nov Jan-Dec

State budget primary balance against MoF's period targets in 2016-2017 (€ million)

State Budget Primary Balance 2016 MoF period target 2016 MoF period target 2017 State Budget Primary Balance 2017

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SLIDE 13

EC winter forecasts

2017 2018 GDP 2.7 3.1 Private consumption 1.6 1.6 Public consumption 0.2 0.0 Gross fixed capital formation 12.0 14.2

  • f which: equipment

13.4 15.2 Exports (goods and services) 3.9 4.7 Imports (goods and services) 3.2 4.2 Primary balance (% of GDP)* 2.0 3.5

13

* Programme definition, excludes transfers to the state of profits from ANFA and SMP portfolios held by the Bank of Greece. Bank of Greece calculation.

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SLIDE 14

Long-term economic outlook

14

Rebalancing the economy from the demand side: Investment and exports will fill the gap of effective demand from lower public and private consumption, reaping the returns of improved competitiveness. Rebalancing the economy from the supply side: The shift in relative price inflation since 2010 makes production of tradeables more profitable.

Sources: Eurostat and BoG calculations. Sources: Eurostat and BoG calculations

  • 4
  • 2

2 4 6 8 2007 2008 2009 2010 2011 2012 2013 2014 2015

Value-added deflators

(annual % change) price of tradeables price of non-tradeables

0% 10% 20% 30% 40% 50% 60% 70% 80% 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Rebalancing of the economy

(Baseline Scenario, % of GDP) Exports Imports Private consumption Investment

Growth rate assumptions Private consumption 1% Investment 5% Exports 5% Imports 4%

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SLIDE 15

BoG Proposals: fiscal policy and government debt

  • Fiscal mix: taxes versus spending.
  • Fiscal target: reduction from 3.5% to 2% of GDP after 2021

consistent with debt sustainability if combined with structural reforms and mild debt relief measures.

  • Debt relief measures:

– Short-term measures – Eurogroup, 5 December 2016. – Medium-term measures: extending maturities and/or smoothing the interest burden.

15

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SLIDE 16

Mild debt relief exercise

16

  • Option 1 defers interest for EFSF loans using the rule: interest due in year t is

deferred to next 20 years in equal installments and capitalized. Weighted average maturity of EFSF interest payments increases by 8.5 years. Includes ANFA and SMP.

0% 1% 2% 3% 4% 5% 6% 7% 2015 2021 2027 2033 2039 2045 2051 2057 2063

Interest burden (total debt, % of GDP, baseline)

Eurosystem Private investors EFSF IMF GLF ESM Other Interest new debt

  • 2

2 4 6 8 10 2016 2022 2028 2034 2040 2046 2052 2058 2064

Interest for EFSF loans (EUR bn)

baseline

  • ption 1
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SLIDE 17

Mild debt relief exercise

17

  • Baseline high surplus: Primary surplus of 3.5% until 2027, gradual decline to 2% by 2037
  • Baseline low surplus: Primary surplus of 3.5% in 2018-2020, 2% afterwards
  • Option 1: Baseline low surplus + increase in WAM of interest payments for EFSF loans by 8.5 years

(smoothing of EUR 101 bn of projected interest payments to EFSF until 2060) + ANFA + SMP

  • GDP growth: 1.5% after 2022
  • Inflation: 2% after 2019
  • Interest rates: GGBs: 5%, ESM: gradual increase to 3.0% until 2021, 3.5% after 2027

50% 70% 90% 110% 130% 150% 170% 190%

2016 2021 2026 2031 2036 2041 2046 2051 2056 2061

Debt to GDP ratio

Baseline low surplus Baseline high surplus

  • ption 1

5 10 15 20 25

2016 2021 2026 2031 2036 2041 2046 2051 2056 2061

Gross Financing Needs of general government

(% of GDP) baseline low surplus

  • ption 1

baseline high surplus Threshold

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SLIDE 18

The euro area: addressing the sovereign crisis

  • ECB monetary policy response (SMP-2010,

OMT-2012, QE-2015)

  • Financial Stability Response: Macroprudential

policy tools

  • GLF → EFSF → ESM
  • Banking Union:

– Single Supervisory Mechanism (SSM) – Single Resolution Mechanism (SRM) – European Deposit Insurance Scheme (EDIS, incomplete)

  • Fiscal and economic surveillance (Six pack –

Two pack)

  • European Semester, Country Specific

Recommendations

  • Macroeconomic Imbalances Procedure (MIP)

18

Euro area recovery

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SLIDE 19

Euro Area Recovery faces headwinds I

  • A. Political - Social
  • Political uncertainty – Incoming general elections
  • Populism – Anti EU rhetoric
  • Protectionism as a response to globalisation and technical progress:

Not a first best response

  • Income distribution: Inability of governments to tax the winners

and subsidise the losers

  • Refugee crisis
  • Terrorism
  • Brexit
  • Uncertainty related to US policies vs the financial sector (Repeal of

Frank-Dodd?)

19

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SLIDE 20

Euro Area Recovery faces headwinds II

  • B. Economic: Weak Internal Demand
  • 10.0
  • 8.0
  • 6.0
  • 4.0
  • 2.0

0.0 2.0 Euro area Belgium Germany Ireland Greece Spain France Italy Cyprus Luxembourg Netherlands Austria Portugal Finland

Output gap

(% of potential GDP-2016)

20 18.0 19.0 20.0 21.0 22.0 23.0 24.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Gross fixed capital formation

(% of GDP)

Source: Ameco

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SLIDE 21

Euro Area Recovery faces headwinds III

  • B. Economic: Weak Internal Demand (continued)

21

  • 3
  • 1

1 3 5 7 9 11

Current account balance

as % of nominal GDP (2016)

Source: Ameco

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SLIDE 22

Improving resilience of the Euro Area I

At the level of Member States we need to strengthen resilience by:

  • Introducing wide-ranging structural reforms which remove rigidities in

labour, product, services markets – Price flexibility – Wage flexibility – Easier entry and exit of firms

  • Consequences

– Increased capacity to absorb shocks internally – Increased productivity and long-term growth – Increased uncertainty → introduce flexicurity: market flexibility, social protection

22

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SLIDE 23

Improving resilience of the Euro Area II

At the level of the euro area we need to reform the institutional setting of EMU: – Enhanced real and cyclical convergence through closer policy coordination – More symmetric adjustment: Member States with current account space should also adjust – Private risk-sharing in EMU: True Financial Union (Banking Union, Capital Markets Union) – Public risk-sharing in EMU: Common Fiscal Stabilisation Tools – Reform-for-investment policy – Common unemployment insurance scheme – “Rainy Day” fund – ESM replaced ultimately by a European Monetary Fund

23