European Sovereign Debt Crisis: Still Not Contained PETR ZEMCIK, DIRECTOR
Economic Outlook Conference, May 9-10, 2012
4
Source: Moody’s Analytics
Expansion
In recession
At risk
Recovery
April 2012
Global Business Cycle Status
5 5
0 50 100 150 200
Greece
Italy
Ireland
Portugal
Belgium
Euro area
France
U.K.
Germany
Spain
Netherlands
20012011E
Fiscal Burden Increases
Sources: European Commission, Moody’s Analytics
General government gross debt, % of GDP
6 6
EFSF ESM
Institutional form
Private company owned by euro
zone states
Intergovernmental
organization
Capital structure
Guarantees and over-guarantees
from the euro zone countries
€80 billion paid-in capital,
€620 billion callable capital
Lending capacity
€440 billion; about €240 billion
remains €500 billion
Lending costs
Funding costs + 200 bps for 3
years, 300 bps afterwards Funding costs + 200 bps
Duration Until June 2013 From July 2012
Financing Intergovernmental decision Linked to the Treaty
European Firewalls May Not Suffice
How the EFSF and ESM Differ
Sources: European Financial Stability Facility, European Stability Mechanism, ECB,
Moody’s Analytics
7 7
-15 -10 -5 0 5 10
Netherlands
Austria
Germany
Ireland
Euro area
Belgium
France
Spain
U.K.
Italy
Greece
Portugal
2011E
2012F
Macreconomic Imbalance Across Europe
Source: Moody’s Analytics
Current account, % of GDP
8 8
-6
-4
-2
0
2
4
6
8
10
12
01Q3 03Q1 04Q3 06Q1 07Q3 09Q1 10Q3 12Q1
ECB Germany
Greece Euro zone
ECB Follows Taylor Rule
Policy rates in %, actual rate for ECB, Taylor rule based otherwise
Source: Moody’s Analytics
9 9
0
5
10
15
20
25
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12
ECB bond purchases, € bil (R)
Italian 10-yr yield (L)
Spanish 10-yr yield (L)
ECB Becomes the Lender of Last Resort
Sources: Bloomberg, Moody’s Analytics
Government bond yields, %
10
20
40
60
80
100
120
140
160
180
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
LTROs
Euribor-OIS
Libor-OIS
Inter-Bank Lending Has Been Improving
Sources: Bloomberg, Moody’s Analytics
Spread in basis points
11 11
0
100
200
300
400
500
600
700
800
900
1,000
Aug Sep Oct Nov Dec Jan Feb Mar Apr
Banks Park Large Sums on ECB’s Deposits
Sources: Moody’s Analytics, ECB
Deposit facility, € mil
12
Bond Yields Remain Elevated
Sources: Bloomberg, Moody’s Analytics
Generic 10-year government bond yields, %
0
5
10
15
20
25
30
35
40
4
6
8
10
12
14
16
18
20
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
LTROs
Italy (L)
Spain (L)
Portugal (L)
Greece (R)
13 13
0
5
10
15
20
25
30
35
40
09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1
Tightening of credit lines
Expected tightening of credit lines
Credit To Private Sector Is Tightening
Sources: ECB, Moody’s Analytics
Net % of the euro zone banks reporting
14 14
1.0
1.5
2.0
2.5
99 00 01 02 03 04 05 06 07 08 09 10 11
One year ahead
Two years ahead
Inflation Expectations Remain Subdued in Europe
Sources: ECB, Moody’s Analytics
HCPI forecast, % change
15 15
-11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1
IrelandGreeceCyprus
SpainPortugal
FranceSlovakiaSlovenia
NetherlandsItaly
BelgiumAustria
MaltaGermany
FinlandLuxembourg
Estonia
Most Euro Zone Countries Are in Deficit
Sources: European Commission, Moody’s Analytics
Fiscal balance in 2011, % of GDP
16 16
0
1
2
3
4
5
6
7
8
9
10
11
12
Ireland Greece Portugal Spain France Italy
2010 2011E 2012F 2013F 2014F 2015F
Further Sharp Fiscal Consolidation Required
Sources: Eurostat, Moody’s Analytics
Budget deficit, % of GDP
31.3%
Maximum deficit allowed
under EU fiscal rules
17 17
0
5
10
15
20
25
30
35
40
Greece Ireland Portugal Italy Spain
French banks German banks
French and German Banks Highly Exposed
Sources: Bank for International Settlements, Moody’s Analytics
Holdings of foreign debt, % of total, as of end Sep 2011
18 18
-16
-12
-8
-4
0
4
8
01 02 03 04 05 06 07 08 09 10 11E
Ratio of fiscal deficit to GDP
Annual GDP growth
Fiscal Tightening Has Hurt Greece’s Economy
%
Sources: OECD, Moody’s Analytics
19 19
97
98
99
100
101
102
103
104
105
10 11 12
OECD U.S.
Japan Russia
G7 Euro zone
Outside Strength May Provide a Bolster
OECD composite leading indicator index
Sources: OECD, Moody’s Analytics
20 20
41%
30%
29% Euro zone
Rest of Europe
Other
The Majority of Germany Exports Go to Europe
Sources: German Federal Statistics Office, Moody’s Analytics
Export share by destination, 2010
21 21
90
95
100
105
08 09 10 11 12F 13F 14F
Euro zone baseline Euro zone crisis
Source: Moody’s Analytics
Euro zone Crisis Scenario Real GDP, rebased 2008Q1=100
22 22
90
95
100
105
110
115
08 09 10 11F 12F 13F
Euro zone Germany France
Italy U.K. U.S.
World
Sources: National Statistical Offices, Moody’s Analytics
Europe Falling Behind the Rest Real GDP, rebased 2008Q1=100
23 23
-8
-6
-4
-2
0
2
4
6
07 08 09 10 11 12F 13F 14F
Greece Ireland Portugal
Greece and Portugal Stuck Deep in Recession
GDP, % change yr ago
Sources: Eurostat, National Statistics Offices, Moody’s Analytics
24 24
-1
0
1
2
3
4
5
10 11 12F 13F
Poland
Czech Republic
Hungary
Germany
Polish Economy Outperforms CE
Real GDP growth, % change yr ago
Sources: National Statistical Offices, Moody’s Analytics
25 25
0 5 10 15 20 25 30 35 40 45
The HagueRome
BrusselsBerlin
CopenhagenLondon
ParisHelsinkiLisbonViennaMadridAthens
StockholmWarsaw
VilniusLjubljana
BratislavaRiga
BucharestPrague
CE Capitals Less Exposed to Fiscal Risk
Source: Eurostat
Employment, public admin. & community service, % of total 2008
Central
Europe
26 26
70
75
80
85
90
95
100
105
110
08Q1 08Q4 09Q3 10Q2 11Q1 11Q4* 12Q3* 13Q2*
Moscow Berlin
London Paris
Rome
European cities
Real GDP, SA, 2008 Q1=100
Source: Moody’s Analytics
* forecasts
27 27
-15 -10 -5 0 5 10 15 20 25 30 35 40
Vienna
Gothenburg
Mosow
Stockholm
Bergen
Antwerpen
Oslo
Brussels
London
Budapest
Paris
St. Petersburg
Prague*
Barcelona
Warsaw*
Athens*
Madrid
Sofia
Tallin*
Dublin**
2003Q1-2008Q2
2008Q3-2011Q4
Notation:
* data begins after 2003Q1
** data until 2010Q4
Moscow & London Defy Country Trends
Source: Moody’s Analytics, Bank of International Settlements
Average quarterly y/y change of the house prices, %
28 28
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
02Q1 03Q1 04Q1 05Q1 06Q1 07Q1 08Q1 10Q3 11Q3
Bergen (NOR) Oslo (NOR)
Goethenburg (SWE) Stockholm (SWE)
Scandinavian House Prices Overtake GDP
Sources: Moody’s Analytics
Ratio of house prices to GDP per capita
29 29
90
95
100
105
110
115
120
125
130
02 03 04 05 06 07 08 09 10 11
Price To Per CapitaGDPPrice To Rent
Swiss Real Estate Prices Rise 2002Q1=100, Owner-occupied Houses
Sources: SNB, Moody’s Analytics
30 30
90
110
130
150
170
190
02 06 10
Zurich East Central
Northwest Bern South
Geneva West
Geneva and West Lead The Way Prices Single-Family Houses, 2002=100
Sources: SNB, Moody’s Analytics
31 31
85
90
95
100
105
110
115
120
08Q3 09Q3 10Q3 11Q3 12Q3
Birmingham Bristol CardiffLeeds London ManchesterNewcastle
Forecast
In the U.K., Only London Remains Buoyant…
Sources: DCLG, Moody’s Analytics
Median sales price, existing homes, 2008Q3=100
32 32
70
75
80
85
90
95
100
105
110
08Q3 09Q3 10Q3 11Q3 12Q3
Asturias BarcelonaBilbao MadridMalaga Las Palmas
…But in Spain, Madrid Is Almost the Weakest
Sources: INE Spain, Moody’s Analytics
Median sales price, existing homes
Forecast
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