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Euro Area in Charts. tutor2u ™. Key Issues. Which countries have joined the Euro Zone? Why have convergence criteria? What are the basic effects of a single currency? What are the motivations for joining the Euro? The case for UK entry The case against UK entry Optimal currency areas - PowerPoint PPT Presentation
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A2 EconomicsPowerPoint Briefings 2009PowerPoint Briefings 2009
Euro Area in Charts
tutor2ututor2u™™
tutor2ututor2u™™
Key Issues
• Which countries have joined the Euro Zone?
• Why have convergence criteria?
• What are the basic effects of a single currency?
• What are the motivations for joining the Euro?
• The case for UK entry
• The case against UK entry
• Optimal currency areas
• Recent macroeconomic performance of the Euro Zone area
• Tensions for the single currency in 2009-2010
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Euro Zone Interest Rates
Per CentInterest Rates for the Euro Area and for the UK
Source: Reuters EcoWin
99 00 01 02 03 04 05 06 07 08 090.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Per
cent
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Bank of England Rates
Euro Zone Interest Rates
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Euro Area macroeconomics
• Steady growth since 1996 came to an end in 2008 when the Euro Area moved into recession
• There have been sizeable differences in macroeconomic outcomes within the Euro Area
• Almost inevitable given the structural differences in the sixteen economies that now have the Euro
• Tensions are rising as growth falters, unemployment rises and individual countries struggle to come to terms with the global credit crunch
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An overview for the Euro Area
Euro area OECD countries
Real GDP (% change) 1.9 1.8 3.0 2.6 1.0-
0.6 1.6Consumer spending (% change) 1.5 1.8 2.0 1.6 0.4 0.2 1.2Gross investment (% change) 1.8 3.4 5.8 4.1 0.4
-4.4 1.8
Unemployment (% of labour force) 8.8 8.8 8.2 7.4 7.4 8.6 8.2
Budget balance (% of GDP)-
3.0-
2.5-
1.3-
0.6-
1.4-
2.2 -1.8
Short term interest rate (%) 2.1 2.2 3.1 4.3 4.7 2.7 3.2
Consumer price inflation (%) 2.2 2.2 2.2 2.1 3.4 1.4 2.2
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Real GDP Growth
Annual percentage change in real national outputEuro Zone and UK Economic Growth
Source: Reuters EcoWin
96 97 98 99 00 01 02 03 04 05 06 07 08
-2
-1
0
1
2
3
4
5
Per
cent
-2
-1
0
1
2
3
4
5
Euro Zone
UK
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Consumer price indices for selected countries
Harmonised index of consumer prices, monthly data, 1996=100Divergence in Consumer Price Inflation
Eurozone12 Germany
Spain Ireland
Italy
Source: Reuters EcoWin
96 97 98 99 00 01 02 03 04 05 06 07 08
95
100
105
110
115
120
125
130
135
140
145
150
1996
=100
95
100
105
110
115
120
125
130
135
140
145
150 Eurozone12 127.8Germany 120.9Spain 142.3Ireland 144.3Italy 133
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Economic cycles
Annual % change in Real Gross Domestic Product for selected Euro Zone countriDifferences in growth rates for Euro Zone countries
Germany [ar 4 quarters] Spain [ar 4 quarters]
Italy [ar 4 quarters] France [ar 4 quarters]
Source: Reuters EcoWin
99 00 01 02 03 04 05 06 07 08
-2
-1
0
1
2
3
4
5
6
7
8
Per
cent
-2
-1
0
1
2
3
4
5
6
7
8
Spain
Italy
France
Germany
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CPI Inflation for the Euro Area
Annual percentage change in consumer prices, the ECB inflation target is 2 per Euro Zone Consumer Price Inflation
Source: Reuters EcoWin
99 00 01 02 03 04 05 06 07 08 09
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Per
cent
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Euro Zone
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Inflation-Unemployment record
Per centEuro Zone Inflation and Unemployment
Source: Reuters EcoWin
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 080
1
2
3
4
5
6
7
8
9
10
11
Per
cent
0
1
2
3
4
5
6
7
8
9
10
11
Euro Zone unemployment
The European Central Bank's target for inflation is 2%
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Inflation divergence
All-items harmonised index of consumer prices, annual percentage change year oOne Currency does not mean One Inflation Rate!
Source: Reuters EcoWin
99 00 01 02 03 04 05 06 07 080
1
2
3
4
5
6
Per
cent
0
1
2
3
4
5
6
Ireland
Germany
Spain
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Manufacturing recession
Index of construction including construction, seasonally adjusted, index, 2000=100Euro Area Industrial Production
Source: Reuters EcoWin
97 98 99 00 01 02 03 04 05 06 07 08
85
90
95
100
105
110
115
Inde
x
85
90
95
100
105
110
115
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Unemployment rates compared
Percentage, seasonally adjusted; 2009-2010 forecast is from the OECDEuro Zone and UK Unemployment
Source: Reuters EcoWin
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
4
5
6
7
8
9
10
11
PE
RC
EN
T
4
5
6
7
8
9
10
11Euro Zone average
UK unemployment rate
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Progress in reducing the NAIRU
Percentage of the labour force, seasonally adjustedEuro Zone Unemployment and the Estimated NAIRU
Unemployment rate NAIRU - Unemployment rate with non-accelerating inflation rate
Source: Reuters EcoWin
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
PE
RC
EN
T
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
tutor2ututor2u™™
Euro Dollar Exchange Rate
Euros per dollar, daily closing rateThe US Dollar against the Euro
Source: Reuters EcoWin
99 00 01 02 03 04 05 06 07 08 09
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
US
D/E
UR
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
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Germany
Germany 2004 2005 2006 2007 2008 2009 Average pa 04-09
Real GDP (% change) 0.7 0.9 3.2 2.6 1.4 -0.8 1.3
Consumer spending (% change) -0.2 0.2 1.2 -0.3 -0.6 0.2 0.1
Gross investment (% change) -1.3 1.3 8.5 4.5 3.6 -2.8 2.3
Unemployment (% of labour force) 9.7 10.5 9.8 8.3 7.4 8.1 9.0
Budget balance (% of GDP) -3.8 -3.3 -1.5 0.1 0.0 -0.9 -1.6
Short term interest rate (%) 2.1 2.2 3.1 4.3 4.7 2.7 3.2
Consumer price inflation (%) 1.8 1.9 1.8 2.3 2.9 1.1 2.0
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Spain
Spain 2004 2005 2006 2007 2008 2009
Real GDP (% change) 3.3 3.6 3.9 3.7 1.3 -0.9 2.5
Consumer spending (% change) 4.2 4.2 3.9 3.5 1.2 -0.4 2.8
Gross investment (% change) 5.1 7.0 7.1 5.3 -2.0 -9.2 2.2
Unemployment (% of labour force) 10.5 9.2 8.5 8.3 10.9 14.2 10.3
Budget balance (% of GDP) -0.4 1.0 2.0 2.2 -1.5 -2.9 0.1
Short term interest rate (%) 2.1 2.2 3.1 4.3 4.7 2.7 3.2
Consumer price inflation (%) 3.1 3.4 3.6 2.8 4.4 1.8 3.2
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Spanish Boom comes to an endSpain - Growth and Consumer Confidence
Source: Reuters EcoWin
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q305 06 07 08
0.51.01.52.02.53.03.54.04.5
Per
cent
0.51.01.52.02.53.03.54.04.5
Real GDP growth
-50
-40
-30
-20
-10
Inde
x
-50
-40
-30
-20
-10
Consumer confidence
100.0105.0110.0115.0120.0125.0
Inde
x
100.0105.0110.0115.0120.0125.0
Spanish House Price Index
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Ireland
Ireland 2004 2005 2006 2007 2008 2009
Real GDP (% change) 4.7 6.4 5.7 6.0 -1.8 -1.7 3.2
Consumer spending (% change) 3.7 7.2 7.0 6.0 -0.5 0.4 4.0
Gross investment (% change) 6.3 12.3 3.8 1.3 -22.7 -23.8 -3.8
Unemployment (% of labour force) 4.5 4.3 4.4 4.6 5.9 7.7 5.2
Budget balance (% of GDP) 1.4 1.7 3.0 0.2 -5.6 -7.1 -1.1
Short term interest rate (%) 2.1 2.2 3.1 4.3 4.7 2.7 3.2
Consumer price inflation (%) 2.3 2.2 2.7 2.9 3.1 0.9 2.3
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German growth and exportsAnnual percentage change in real national output and exports of goods and s
German Economy - Growth of GDP and Exports
Source: Reuters EcoWin
00 01 02 03 04 05 06 07 08
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Per
cent
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Real GDP
Exports of Goods and Services
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German inflationAnnual percentage change in the harmonised index of consumer prices (%)
Germany has achieved low relative inflation
Eurozone15 GermanySource: Reuters EcoWin
99 00 01 02 03 04 05 06 07 080.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Per
cent
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
