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Panel discussion on the European Economy

Panel discussion on the European Economy. 16th Dubrovnik Economic Conference June 2010 Athanasios Vamvakidis International Monetary Fund. The author’s views, not necessarily the IMF’s. Outline. Fiscal risks to the fore in advanced Europe When Greece sneezes, who gets a cold?

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Panel discussion on the European Economy

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  1. Panel discussion on the European Economy 16th Dubrovnik Economic Conference June 2010 Athanasios Vamvakidis International Monetary Fund

  2. The author’s views, not necessarily the IMF’s

  3. Outline • Fiscal risks to the fore in advanced Europe • When Greece sneezes, who gets a cold? • Can everyone become more competitive? • Don’t forget emerging Europe • Recent policy initiatives in Europe and… • …what else can be done

  4. How did we get here? July 2007 May 2010

  5. Fiscal vulnerabilities to the fore in Europe

  6. Recent policies in South Europe to address unfavorable debt dynamics

  7. Fiscal consolidation eventually needed across the board…

  8. …including to ensure long-term fiscal sustainability

  9. Adjustment without macro support a challenge in Greece… Lower Interest Rates Weaker Currency Higher Exports Top 10 Past AM Consolidations Greece

  10. …but recent program gives Greece a chance

  11. Recent policy initiatives respond to financial sector contagion risks

  12. The Greek program also an effort to address spillover risks

  13. External Imbalances complicate the adjustment

  14. A weaker euro could help; less so if driven by risk aversion

  15. Structural reforms could address bottlenecks and foster growth

  16. Vulnerabilities have declined but remain in emerging Europe…

  17. …adjustment should not hurt long-term growth prospects

  18. …adjustment should not hurt long-term growth prospects

  19. Policies to address sovereign risks • Front-loaded deficit reduction in affected countries • Extended liquidity support and dollar swaps • ECB securities market program • Emergency loans (EU, IMF): Greece, EFSM, EFSF • Reforms to establish medium-term and long-term fiscal sustainability • Completion of financial sector repair • Structural reforms for growth • Reform of euro area fiscal governance

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