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58 Deleveraging, What Deleveraging The euro periphery: The worst legacy If the aggregate Eurozone is a source of concern on account of the still high leverage ratios, the limited progress in deleveraging the financial sector, the negative impact of the associated credit crunch and the severe impact of the crisis on the real economy, all these problems look worse again in relation to the euro periphery. Indeed, the legacy of the two recent crises already experienced since 2008 means a chronic liability and economic slack overhang that will hamper macro-financial performance in the coming years. It also means vulnerability to any future spike in international funding conditions, given the major rollover exposures faced by these countries. The output losses since 2008 show completely different dynamics between the core and the periphery (Figure 4.17). Indeed, as shown in the chart, while German output is by now well above 2008:Q1 levels, and in France it has recovered the loss, in Greece it is about 25% below, in Italy about 9% below, and it is still well below in the other peripheral countries. Figure 4.17 Eurozone and selected member countries’ output levels 104 100 96 92 EMU GDP (Q1 08 = 100) 88 84 EMU Spain Italy Portugal 80 Germany Ireland Greece France 76 08 09 10 11 12 13 Source: Authors’ calculations based on national accounts data. As shown in Figure 4.18, the divergent core and periphery dynamics reflect, amongst other factors, a much more severe credit crunch, especially after 2011 (see the previous section). Figure 4.19 and Table 4.3 show the leverage dynamics and the sectoral composition of debt for selected European economies.
Case studies 59 Figure 4.18 Bank lending in the Eurozone 130 Bank Lending to the Private Sector (Q1 08 = 100) 120 110 100 90 Spain 80 Germany France 70 Italy 60 Portugal Ireland 50 08 09 10 11 12 13 14 Source: Authors’ calculations based on ECB data. Figure 4.19 Selected Eurozone countries’ total debt 540 500 460 420 380 340 300 260 220 180 140 Greece Spain Germany France Italy Portugal Total debt (% of GDP) 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: authors’ calculations based on national accounts data. Ireland is excluded as an outlier While Figure 4.20 shows that the debt levels of households and non-financial corporations in the euro periphery are a source of concern (especially in Ireland, Spain and Portugal), these countries are especially vulnerable due to their net international investment positions and levels of public debt, which are clearly more worrisome than anywhere else and increase vulnerability to future financial shocks (Figures 4.21 and 4.22). 23 23 Ireland is not included in Figure 4.20 due to the outsized role of foreign multinational firms in the non-financial corporate sector. However, other evidence indicates that Irish households and many Irish small and medium-sized enterprises are highly indebted.
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Geneva Reports on the World Economy
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International Center for Monetary a
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International Center for Monetary a
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Acknowledgements We thank Susan Lun
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List of Conference Participants Edm
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List of Conference Participants xi
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List of Conference Participants xii
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Foreword Since 1999 the Geneva Repo
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