will the eu survive its crises?martin wolf, associate editor & chief

Will the EU survive its crises?Martin Wolf, Associate Editor & Chief Economics Commentator, Financial Times

Instituto Europeu

14th November 2016

Lisbon

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Will the European Union survive its crises?

• The rebirth of populism

• The economic crises

• The political crises

• Too little Europe or too much?

1. The rebirth of populism

• Populism of the right and left have emerged

• It is anti-elite, anti-foreigner and anti-trade

• It reflects a mix of economic and political forces: income stagnation, inequality, the financial crises and status anxiety

• It has produced Brexit, Trump, Le Pen, AfD, Podemos, Syriza, etc

• It is not over yet

• It now threatens the end of the postwar world

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2. The economic crises: global

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-25,0%

-20,0%

-15,0%

-10,0%

-5,0%

0,0%

5,0%

0,0

50,0

100,0

150,0

200,0

250,0

300,0

350,0

400,0

1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019

GDP IN THE ADVANCED ECONOMIES (source: IMF)

Advanced economies 1979-2007 trend Deviation

THE SLOWDOWN IN ADVANCED ECONOMIES

2. The economic crises: global

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CENTRAL BANKS STUCK ON ULTRA-LOW RATES

-2

0

2

4

6

8

10

12

14

16

1990 1993 1996 1999 2002 2005 2008 2011 2014

CENTRAL BANK INTERVENTION RATES

Fed BoE BoJ ECB

2. The economic crises: divergence

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EUROZONE BECOMES JAPAN

90

95

100

105

110

115

Q1-2008 Q1-2009 Q1-2010 Q1-2011 Q1-2012 Q1-2013 Q1-2014 Q1-2015 Q1-2016

DIVERGENT IMPACT OF THE GREAT RECESSION

Eurozone GDP Eurozone Real DemandUS Real GDP US Real Demand


7

POST-CRISIS DIVERGENCE

0

2

4

6

8

10

12

14

jan/06 jan/07 jan/08 jan/09 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16

HARMONISED UNEMPLOYMENT RATES

Eurozone US


8

EUROZONE FAILS TO HIT ITS TARGETS

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5CORE RATE OF CONSUMER PRICE INFLATION

US Eurozone


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10,8%

6,2%3,9% 3,5% 2,5% 2,3% 2,2%

0,1%

-0,1% -0,3% -1,8% -2,1% -2,2%-5,8%

-7,6% -7,8%-11,0%

-16,9%

-26,9%-30,0%-25,0%-20,0%-15,0%-10,0%

-5,0%0,0%5,0%

10,0%15,0%

CHANGE IN GDP PER HEAD 2007-2016(at purchasing power parity)(Conference Board)


10


0,0%

20,0%

40,0%

60,0%

80,0%

100,0%

120,0%

140,0%

France Greece Ireland Italy Portugal Spain

GDP PER HEAD RELATIVE TO GERMANY(at purchasing power parity)

2000 2007 2016


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0,0%

20,0%

40,0%

60,0%

80,0%

100,0%

120,0%

140,0%

Portugal Italy France Spain Ireland Germany

NET PUBLIC DEBT(over GDP, per cent)(IMF)

2007 2016

CRISES MEAN SOARING PUBLIC DEBT


12


0

5

10

15

20

25

30

jan/06 jan/07 jan/08 jan/09 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16

HARMONISED UNEMPLOYMENT RATES

France Germany Italy Eurozone UK Portugal Spain Greece

2. The economic crises: adjustment

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-3,0%-2,0%-1,0%0,0%1,0%2,0%3,0%4,0%5,0%

2000 2004 2008 2012 2016 2020

Eurozone Imbalances on Current Account (as per cent of eurozone GDP) (Source: IMF, WEO Database)

Germany France Other creditorsCrisis-hit countries Others Eurozone

2. The economic crises: non-adjustment

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DEFLATIONARY PRESSURE

-5,0-4,0-3,0-2,0-1,00,01,02,03,04,05,0

CORE CPI INFLATION

Germany France Italy Portugal Ireland Greece Spain

3. The economic crises: Brexit

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THE BENEFITS OF CURRENCY ADJUSTMENT

90

100

110

120

130

140

150

160REAL EXCHANGE RATE FOR STERLING (J P Morgan)

2. The economic crises

• The eurozone delivers deflation and divergence, not prosperity and convergence

• This is because of:– Structural weaknesses in many economies

– Structurally weak aggregate demand

– Completely blocked adjustment mechanisms

– Insufficient financing

• There is a risk that some economies will wither away

• The UK now confronts a painful adjustment

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3. The political crises

• The big challenges– Stagnation or prosperity

– Challenge of international relations:• The US;

• Russia;

• Middle East

– Migration

– Brexit

• Can the EU cope?

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4. Too little Europe and too much?

• The EU has chosen to do more together than it can

• This is not an institutional question, but a political one

• It would not be so difficult if the countries were more similar, economically, politically and culturally.

• The UK has moved from being semi-detached to being fully detached – “hard Brexit” is in the offing

• But the EU’s life will not be made easier by Brexit

• Break-up is an eminently possible outcome

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will the eu survive its crises?martin wolf, associate editor & chief

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