1qGLG9p

Recommendations

Info

62 Deleveraging, What Deleveraging Over 2003-07, Greece, Ireland, Portugal and Spain each experienced substantial net financial inflows, with an associated expansion in the scale of current account deficits and deterioration in their net international investment positions (see Figure 4.21). 24 These international flows were predominantly debt-type flows, with equity-type flows much smaller in scale (Lane, 2013). Since 2008, there has been a sharp contraction in net capital flows, with these countries running current account surpluses by 2013. Significantly, the reversal in private capital flows was much larger than the overall reversal, since private outflows were partly substituted by official inflows. These official flows took two forms: ECB liquidity flows to banks in these countries (as shown in Figure 4.21), and EU-IMF loans to the national governments. However, the legacy of the sustained period of current account deficits (in combination with the impact of stock-flow adjustments) is that the net international investment positions of these countries hover at around 100% of GDP. In turn, these accumulated net external liabilities represent a serious potential drag on future macroeconomic performance and financial stability. Figure 4.22 Eurozone countries’ public debt 180 160 140 120 100 80 60 40 20 0 Greece Germany Italy Ireland Government debt (% of GDP) Spain France Portugal 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: Authors’ calculations based on national accounts data. It is important to appreciate that these aggregate external imbalances reflect a diversity of sectoral imbalances in the individual countries. However, a common pattern across the euro periphery has been that the crisis has resulted in a sharp rise in public debt (Figure 4.22). Indeed, not only is the ratio between public debt and GDP almost at or above 100% (with Greece and Italy the worst cases), but it 24 There was an earlier wave of capital inflows in the late 1990s associated with the convergence in interest rates triggered by the formation of the single currency (Blanchard and Giavazzi, 2001). However, the 2003-07 inflows were much larger in magnitude, despite a less attractive set of macroeconomic fundamentals relative to the earlier wave (Lane and Pels, 2012).
Case studies 63 is also still rising. (While Italy is not similar to the euro periphery in relation to net international investment position, these countries are grouped together in relation to common concerns about public debt.) In particular, Italy (133%), Portugal (129%) and Ireland (124%) look worrisome in terms of the level of public debt (considering also the very disappointing nominal growth trends), while the still high deficit in Spain means that its public debt trajectory remains a concern. Importantly, the efforts to deleverage the public sectors in these countries through government programmes have largely underachieved – the 2013 public debt ratios in Spain, Italy, Portugal and Greece exceeded the targets set early in 2012 by more than 10 percentage points. These debt dynamics reflect large overshooting in the fiscal deficit, particularly in Spain where the 2013 ratio was still twice as large as the target set only a year earlier (-7.0% versus a target of -3.0%). This overshooting reflects the adverse loop (see Section 5.1) between procyclical austerity measures and growth in the absence of other supportive policies. The large gaps between projections and outcomes provide a cautionary tale about the difficulty of reducing debt-to-income ratios sharply through austerity policies under such conditions. Figures 4.23A and 4.23B show the evolution of debt levels over 2003-12 for the household sector and the non-financial corporate sector. Figure 4.23A shows that, in each country, household debt grew more rapidly than GDP during the 2003- 07 pre-crisis period, with the expansion especially strong in Ireland (the debts were primarily accumulated to fund housing investment). Since the onset of the crisis, we can see some deleveraging in countries that have been more exposed to the housing crisis (Ireland, Spain and Portugal), while France and Italy have not adjusted and Greek leverage has been growing, driven by the collapse in the denominator rather than by extra consumer borrowing.
Page 1:
Geneva Reports on the World Economy
Page 4 and 5:
International Center for Monetary a
Page 6 and 7:
International Center for Monetary a
Page 8 and 9:
Acknowledgements We thank Susan Lun
Page 11 and 12:
List of Conference Participants Edm
Page 13 and 14:
List of Conference Participants xi
Page 15 and 16:
List of Conference Participants xii
Page 17:
Foreword Since 1999 the Geneva Repo
Page 20 and 21:
2 Deleveraging, What Deleveraging 1
Page 22 and 23:
4 Deleveraging, What Deleveraging S
Page 24 and 25:
6 Deleveraging, What Deleveraging l
Page 26 and 27:
8 Deleveraging, What Deleveraging i
Page 29 and 30: 2 Global debt analysis: Deleveragin
Page 31 and 32: Global debt analysis: Deleveraging
Page 33 and 34: Global debt analysis: Deleveraging
Page 35: Global debt analysis: Deleveraging
Page 38 and 39: 20 Deleveraging, What Deleveraging
Page 105 and 106: 6 Discussions Morning discussion Ma
Page 107 and 108: Discussions 89 He also agreed with
Page 109 and 110: Discussions 91 urged the authors to
Page 111 and 112: Discussions 93 moving demographic c
Page 113 and 114: Discussions 95 about potential GDP
Page 115 and 116: Discussions 97 when there is no com
Page 117 and 118: Discussions 99 In response to Laure
Page 119 and 120: Data Appendix Debt typically expres
Page 121 and 122: References Adrian, T., E. Moench an
Page 123 and 124: References 105 Jorda, O., M. Schula
Page 125: It is widely accepted that high lev
show all

1qGLG9p

Create successful ePaper yourself

Delete template?

Save as template?