Wie Europa sich kaputtspart die gescheiterte Idee der Austeritätspolitik

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1 Wie Europa sich kaputtspart die gescheiterte Idee der Austeritätspolitik Mark Blyth Professor of International Political Economy and International Studies Brown University and the Watson Institute for International Studies Friedrich Ebert Stiftung November 11 th 2014

2 UM WELCHE ART DER KRISE HANDELT ES SICH?

3 Wirtschaftswachstum?

4 Arbeitslosigkeit?

5 Staatsschulden?

6 Eurokrise = Krise der Staatsausgaben? Man beachte die Kausalität im folgenden Zitat... It is an undisputable fact that excessive state spending has led to unsustainable levels of debt and deficits that now threaten our economic welfare. Piling on more debt now will stunt rather than stimulate growth in the long run. W. Schäuble, Financial Times, September 5 th 2011

7 Das Problem: Falsches Timing

8 WENN ES DAS NICHT IST, WAS IST ES DANN?

9 Die Große Konvergenz Ist die EZB so vertrauenswürdig? Oder handelt es sich um Anreize zu fahrlässigem Verhalten (moral hazard)?

10 Das Resultat: Europäische Bankbilanzen voller bad assets 40 Foreign banks combined consolidated claims on Greece, Ireland, Italy, Portugal, Spain (% GDP 2011) BIS March % GDP

11 Die Folge heute: Große Probleme mit Non Performing Loans

12 Europa hat ein anderes Problem als die USA USA Too Big To Fail Europe Too Big To Bail

13 Too Big to Fail : Die USA Bank Assets (millions of USD) Bank Assets (% of GDP) GDP Other Wells Fargo Citigroup Bank of America Morgan Stanley JP Morgan Goldman Bank Assets GDP 0 GDP Top 6 Bank Assets Total Bank Assets

14 Das "too big to bail" Problem: Beispiel Frankreich Bank Assets (millions of EUR) , , , ,00 Bank Assets (% of GDP) , , , , , ,00 GDP Other Societe Generale Credit Agricole BNP Paribas ,00 Bank Assets GDP 0 GDP Top 3 Bank Assets Total Bank Assets

15 Die Situation in der Eurozone ist noch extremer Total Eurozone Bank Assets 40 trillion Euros Total Eurozone GDP 14 trillion Euros Largest economy Deutschland 3.0 trillion Euros Total Non Performing Loans 1.2 Trillion Euros (40 Percent of German GDP!) Folge: Deutschland kann das nicht alleine stemmen!

16 Und das ist ein Problem, weil The underlying base capital of the banking system has lost value The Sovereigns that house the banks can t inflate, liquidate or devalue Austerity shrinks GDP and makes debts bigger and yields greater (the denominator effect) Result: The basic funding model for running a very big European Bank comes unstuck Which is what the crisis is really all about.

17 ES IST EINE BANKENKRISE UND UNS FEHLEN DIE INSTRUMENTE, UM SIE ZU LÖSEN

18 Ursache Nummer eins: ein Eigentor" Die lokale Rationalität Herrn Trichets... the idea is to revive the market [for covered bonds], which has been very heavily affected, and all that goes with this revival, including the spreads, the depth and the liquidity of the market. We are not at all embarking on quantitative easing." [italics added] (ECB: May 7th 2009)

19 Verstärkende Faktoren ECB denies lender of last resort function (10/9) Greeks revise deficit figures (10/9) Germany Denies Backstop for Greek Rollover Risk (12/9 3/10) And 20 Summits later Result: Spreads widen on perception of contagion risk

20 Staatsanleiherenditen gehen auseinander Policy response is country bailouts (more debt) and austerity (which shrinks GDP denominator effect still more debt) Spreads widen further More summits add more uncertainty Attention shifts to funding of European HLFI s geared at 40 60:1

21 THE EUROCRISIS PART TWO: THE US CRISIS REDUX (JUNE 2011 DECEMBER 2013)

22 Was passiert, wenn Banken das Geld USA ausgeht EU HLFI s fund via repo around 50 percent Collateral of choice ABCP Subprime devalues collateral Collateral calls kill shadow banks and start bank run to Lehman Result: TBTF is bailed out HLFI s fund via repo around 70 percent Collateral of choice Euro denominated sovereign debt Sovereign ratings tumble and Repos fail HLFI s shut out of US money market paper (May 2011) Yields Spike and hit Bunds (November 2011) Result: TBTB needs a bail out

23 Rettung naht Die Globale Rationalität des Herrn Draghi Italian Ten Year Bond Yields June 2011 May 2013 December 2011: Long Term Refinancing Operation (LTRO) (1 trillion Euro) March 2012: LTRO 2 (0.529 T Euro) June 2012: Emergency Liquidity Assistance (0.4 Euro) July 26 th 2012: Draghi says he will do whatever it takes

24 Ein genauerer Blick auf Italien

25 Italien und Frankreich: Wird Austeritätspolitik belohnt?

26 A Class Specific Put Option? Total state support approved for the EU financial sector totals more than E5 trillion, equivalent to 40 percent of [eurozone] GDP. Of capital injected into banks to keep them afloat, only about 10 percent of the original capital injected has been repaid. Otherwise insolvent banks have been recapitalized and the monetary policies of the ECB and national central banks have allowed themselves at low cost. Oliver Wyman, The Shape of Things to Come: What Recent History Tells US About the Future of European Banking. Oliver Wyman Consulting Group, August 2013: 14

27 WO STEHEN WIR JETZT?

28 MACROECONOMIC DEFLATION?

29

30 SPAREN FÜHRT ZU VERSCHULDUNG (DEBT DEFLATION)

31

32

33 Sinkende öffentliche Investitionen

34 Wählen Sie Ihren Ökonomen

35 Fiscal Support and Fiscal Space If confidence in public finances is assured, the next stage and this is where we are now is to exploit the available fiscal space, so that fiscal policy can work with rather than against monetary policy in supporting aggregate demand. Mario Draghi, The Brookings Institute, Washington DC, USA, 9 th October 2014:

36 Was kann man tun? Use the EIB as an off balance sheet vehicle to issue bonds for infrastructure. ECB buys bonds back on secondary market billion Euros France and Italy engage in serious structural reforms Germany allows loosening of fiscal stance to allow automatic stabilizers to engage

37 Was kann schief gehen? Bad Ideas: From Austerity to Structural Reform to Demographics to Secular Stagnation Bad Economics: You can t solve fiscal problems with monetary instruments no matter how hard you try You can damage the demand side enough to hurt the supply side Bad Politics: Germany says nein Hollande invokes JB Say Renzican t deliver Problem: No one votes for a 15 year long recession (Podemos, UKIP, NF, Syriza)

38 A Predictable Error and a Warning What s individually rational can be collectively disastrous Your Hartz are not in the right place Staying the course will bring extremists to power, and soon Political Courage and Leadership is knowing when to change course If we don t make the bargain, far worse ideas, and policies, will become the norm

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