Germany

1
Germanys Role inThe Euro Crisis Management
Ágnes Orosz
Institute of World Economics Research
Centre for Economics and Regional Studies  of
the Hungarian Academy of Sciences 

• Post-Crisis Economic Development
• of EU and Bulgaria
•  
• 18th 19th October 2012, Sofia

2
Outline
Institute of World Economics Research
Centre for Economics and Regional Studies  of
the Hungarian Academy of Sciences 

• Outline
• Importance, relevance of the topic
• The nature of sovereign debt crisis
• Competitiveness imbalances
• Current account imbalances
• Germanys euro trilemma
• Final remarks

3
Institute of World Economics Research
Centre for Economics and Regional Studies  of
the Hungarian Academy of Sciences 

• Why is Germany important?
• Strong commitment to stabilise the euro area
• Ruling of the German Constitutional Court on
  September 12 ? green light for ESM (with a few
  recommendation)
• Engagement to rule-based fiscal policy (pioneer,
  role model)
• Biggest contributor to crisis management
• Historical reasons
• Trade, economic performance, etc.

4
Institute of World Economics Research
Centre for Economics and Regional Studies  of
the Hungarian Academy of Sciences 

• On the issue of sovereign debt crisis
• Not primarily a sovereign debt crisis ? banking
  and balance of payments crisis
• Competitiveness imbalances
• Current account imbalances
• Increasing corresponding debt flows

5
Institute of World Economics Research
Centre for Economics and Regional Studies  of
the Hungarian Academy of Sciences 

• Competitiveness problem of the periphery
• Particularly important for Greece, Ireland,
  Italy, Portugal, and Spain
• Devaluation is not possible because of the euro ?
  ULC (increased the most in the problematic area,
  while the least for Germany) ? competitiveness
  gap with Germany (solution downward adjustment
  of wages???)
• Differences is export basket ? decreasing wages
  no solution
• Export structure issues

6
About current account imbalances
Institute of World Economics Research
Centre for Economics and Regional Studies  of
the Hungarian Academy of Sciences 

• About current account imbalances
• Trade surpluses of Germany more regionally
  concentrated to Europe
• Loss decreasing export demand within Europe
• Benefits (1) depressing the euro stimulating
  non-euro net exports, (2) depressing German
  interest rates ? Germany as a safe haven for
  investments
• Early warning mechanism of EC (CA above 6 of GDP
  danger for overall stability in Europe)
  rather consequence than cause

7
Germanys euro trilemma
Institute of World Economics Research
Centre for Economics and Regional Studies  of
the Hungarian Academy of Sciences 

• Germanys euro trilemma
• Perpetual export surpluses
• No transfer/no bailout monetary union
• A clean independent central bank
• Maastricht regime designed by Germany no
  bail-out and no transfers (result bankrupting
  its trade partners)
• Trilemma must be solved ? steps towards more
  bail-out (contradict to the German voters)

8
Final remarks
Institute of World Economics Research
Centre for Economics and Regional Studies  of
the Hungarian Academy of Sciences 

• Final remarks
• Importance of the presidential elections in
  September 2013 ? European policy would be a part
  of the election campaign
• Need for additional crisis management measures ?
  financial relief and political support from
  Germany (incremental steps)
• Political union debate has started (potential
  constitutional changes)
• Changes in Merkels communication (Greeces
  visit)