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CISI Corporate Finance Forum Darren Winder 6 December 2011
European Law
“Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (hereinafter referred to as „national central banks‟) in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments” Maastricht Treaty – Article 104 (1)
2
Euro area overview: real GDP
Real GDP – euro billions
Euro area real GDP 2010 Portugal Greece Austria
Entry Current % chg Germany
1,948
2,283
17
France
1,345
1,626
21
Italy
1,131
1,226
8
Spain
573
776
36
Netherlands
384
484
26
Belgium
235
293
25
Austria
194
249
28
Greece
138
170
23
Portugal
117
135
15
88
135
53
Ireland
Ireland Other
Belgium
Germany
Netherlands
Spain
Italy
France
Total: €7.56 trillion 3
Euro area overview: real GDP since the start of the euro
Real GDP – euro billions
Euro area real GDP Q1 1999 = 100
Entry Current % chg Germany
1,948
2,283
17
France
1,345
1,626
21
Italy
1,131
1,226
8
Spain
573
776
36
Netherlands
384
484
26
Belgium
235
293
25
Austria
194
249
28
Greece
138
170
23
Portugal
117
135
15
88
135
53
Ireland
140 Euro area
Germany
France
Italy
Spain
135
130
125
120
115
110
105
100 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
4
Euro area overview: nominal GDP
Nominal GDP – euro billions
Euro area nominal GDP 2010 Ireland Portugal Greece
Entry Current % chg Germany
1,958
2,526
29
France
1,321
1,964
49
Italy
1,091
1,565
44
Spain
539
1,064
97
Netherlands
363
599
65
Belgium
230
364
58
Austria
191
294
54
Greece
136
224
64
Portugal
110
173
57
79
155
96
Ireland
Other
Austria Germany Belgium
Netherlands
Spain
France
Italy
Total: €9.15 trillion 5
Euro area overview: nominal GDP since the start of the euro
Nominal GDP – euro billions Entry Current % chg Germany
1,948
2,283
17
France
1,345
1,626
21
Italy
1,131
1,226
8
Spain
573
776
36
Netherlands
384
484
26
Belgium
235
293
25
Austria
194
249
28
Greece
138
170
23
Portugal
117
135
15
88
135
53
Ireland
Euro area nominal GDP Q1 1999 = 100 200 Euro area
Germany
France
Italy
Spain
190 180 170 160 150 140 130 120 110 100 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
6
Euro area overview: general government debt
Euro gross government debt 2010
General government gross debt – euro billions
Other PortugalIreland Greece
Entry Current % chg Germany
1,185
2,062
74
787
1,591
102
1,254
1,843
47
Spain
346
642
86
Netherlands
238
370
55
Belgium
270
341
26
Austria
124
206
66
Greece
116
329
185
Portugal
55
161
191
Ireland
42
144
243
France Italy
Austria Germany Belgium
Netherlands
Spain
France Italy
Total: €4.09 trillion 7
Euro area overview: mortgage debt
Mortgage debt as a % of GDP
Euro mortgage debt 2011 Ireland
% of GDP Germany
38
France
41
Italy
23
Spain
61
Netherlands
62
Belgium
24
Austria
28
Greece
35
Portugal
66
Ireland
52
Other
Portugal Greece Austria
Germany
Belgium
Netherlands
Spain France
Italy
Total: €3.77 trillion 8
Euro area overview: recessions and recoveries
Euro area and US real GDP (Q1 2008 =100)
Recessions and recoveries compared
101 Peak to trough (%)
% chg from trough
Germany
-6.8
7.6
0.6
France
-3.9
3.6
-0.5
Italy
-6.9
2.3
-4.8
Spain
-4.9
1.2
-3.7
Netherlands
% chg from peak
-4.9
3.9
-1.2
-12.7
3.4
-9.7
Portugal
-3.9
1.3
-2.7
Greece
-10.0
0.2
-9.9
Euro area
-5.5
3.9
-1.8
US
-5.0
5.1
0.2
Ireland
Euro area
US
100
99
98
97
96
95 Q1
Q2
Q3 2008
Q4
Q1
Q2
Q3 2009
Q4
Q1
Q2
Q3 2010
Q4
Q1
Q2
Q3
2011
9
Euro area overview: recessions and recoveries
Euro area and US real GDP (Q1 2008 =100)
Recessions and recoveries compared
101 Peak to trough (%)
% chg from trough
% chg from peak
100
Germany
-6.8
France
-3.9
7.6
0.6
99
3.6
-0.5
Italy
-6.9
2.3
-4.8
Spain
-4.9
1.2
-3.7
Netherlands
-4.9
3.9
-1.2
-12.7
3.4
-9.7
Portugal
-3.9
1.3
-2.7
Greece
-10.0
0.2
-9.9
Euro area
-5.5
3.9
-1.8
US
-5.0
5.1
0.2
Ireland
98 Euro area
97
Germany France
96
Italy Spain
95 94 93 92 Q1
Q2
Q3 2008
Q4
Q1
Q2
Q3 2009
Q4
Q1
Q2
Q3 2010
Q4
Q1
Q2
Q3
2011
10
Loss of competitiveness: Italy and Spain versus Germany and France
Wage inflation in Italy and Spain has led to a loss of competitiveness in those countries
Harmonized index of consumer prices (January 1999 = 100) 145
140
Euro area
Germany
Italy
Spain
France
135
130
125
120
115
110
105
100 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
11
Persistent current account deficits: a lead indicator of a financial crisis?
Euro area broadly in balance
Euro area current account balance (% of GDP) 1.5
1.0
0.5
0.0
-0.5
-1.0 1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
12
Current account balance: Italy
Italy current account was in surplus following the last recession
Italy current account balance (% of GDP) 4
3
2
1
0
-1
-2
-3
-4 1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
13
Current account balance: Spain
Spain’s current account has become more persistent as it has grown
Spain current account balance (% of GDP) 4
2
0
-2
-4
-6
-8
-10
-12 1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
14
Current account balance: Greece
Greece living beyond their means for a prolonged period of time
Greece current account balance (% of GDP) 0
-2
-4
-6
-8
-10
-12
-14
-16 1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
15
Current account balance: Portugal
Portugal’s current account position only slightly less acute than Greece’s
Portugal current account balance (% of GDP) 4
2
0
-2
-4
-6
-8
-10
-12
-14 1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
16
Current account balance: Ireland
Ireland has moved back to living within its means
Ireland current account balance (% of GDP) 6
4
2
0
-2
-4
-6
-8 1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
17
Current account balance: Germany
Germany runs a current account surplus
Germany current account balance (% of GDP) 8 7 6 5 4 3 2 1 0 -1 -2 1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
18
German exports
Euro area accounts for less than 50% of German exports
German exports 2010 France Netherlands
Italy
Austria Other non-euro Belgium
Spain Other euro
UK
US Russia Czech Rep. Poland
China Sw itzerland
Total: €0.9 trillion 19
Exports by euro area countries
Exports by euro area countries 2010 (% of total) Germany
France
Italy
Spain
N'lands
Belgium
Austria
Greece
Finland
Portugal
Ireland
Slovakia
Slovenia
Cyprus
Other
-
9.9
6.5
3.8
7.0
5.0
5.8
0.7
0.8
0.9
0.5
1.0
0.4
0.0
57.8
France
16.4
-
8.2
7.6
4.2
7.7
0.9
0.7
0.5
1.1
0.5
0.5
0.3
0.1
51.4
Italy
13.2
11.8
-
5.9
2.5
2.6
2.4
1.6
0.4
1.0
0.3
0.6
1.1
0.2
56.2
Spain
10.7
18.6
8.9
-
3.2
2.9
0.8
0.9
0.3
9.1
0.4
0.3
0.2
0.2
43.6
N'lands
26.1
9.2
4.9
3.5
-
13.0
1.4
0.6
1.0
0.8
0.7
0.4
0.2
0.1
38.1
Belgium
19.0
17.0
4.7
3.0
12.2
-
1.0
0.6
0.7
0.6
0.6
0.3
0.1
0.1
40.2
Austria
32.2
4.2
7.9
1.8
1.6
1.4
-
0.5
0.5
0.3
0.2
2.7
2.1
0.1
44.5
Greece
11.1
3.9
11.0
2.4
2.4
1.5
1.0
-
0.9
0.7
0.2
0.3
0.6
7.3
56.9
Finland
10.2
3.4
2.6
2.1
6.8
2.9
0.7
0.4
-
0.3
0.3
0.2
0.1
0.0
69.7
Portugal
13.1
11.9
3.8
26.7
3.8
2.9
0.6
0.3
0.7
-
0.3
0.2
0.1
0.1
35.5
Ireland
7.1
5.3
3.2
4.0
3.6
16.0
0.4
0.4
0.3
0.5
-
0.1
0.1
0.0
59.0
Slovakia
20.0
7.1
5.8
2.7
3.0
1.7
7.3
0.4
0.3
0.3
0.1
-
0.8
0.1
50.5
Slovenia
19.4
6.9
12.1
1.1
1.9
1.0
7.5
0.3
0.2
0.3
0.1
3.3
-
0.0
45.9
Cyprus
10.6
1.3
2.6
0.5
1.8
0.8
0.8
24.5
0.2
0.1
0.3
0.1
0.1
-
56.2
Germany
20
Bond yields: Greece
Market and media attention has been focused here
Greece 10-year government bond – spread over Germany (bps) 3,500
Average: 118bps
Average: 301bps
Average: 25 bps
Average: 1,468bps
3,000
2,500
2,000
1,500
1,000
500
0 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
21
Bond yields: Portugal
Situation in Portugal increasingly beginning to resemble Greece
Portugal 10-year government bond – spread over Germany (bps) 1,200
Average: 243bps
1,100
Average: 130bps
Average: 19bps
Average: 720bps
1,000 900 800 700 600 500 400 300 200 100 0 -100 1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
22
Bond yields: Italy
Italian yield spreads still below pre-euro levels
Italy 10-year government bond – spread over Germany (bps) 900
Average: 358bps
800
Average: 24bps
Average: 94bps
Average: 250bps
700 600
500
400
300 200
100
0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
23
Bond yields: Spain
Spanish spread has not dropped below 100bps since mid-2010
Spain 10-year government bond – spread over Germany (bps) 500
Average: 86bps
Average: 11bps
Average: 273bps
400
300
200
100
0
-100 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
24
Italy: past versus present
The last time that Italy’s government debt was as high, nominal GDP was growing strongly
Italy – debt and growth 12
123 Nominal GDP Grow th (LHS)
General gov ernment gross debt (RHS)
10
118
8 113 6 108
4
2
103
0 98 -2 93
-4
-6
88 1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
25
Fiscal position: Euro area
Euro are – budget deficits rose sharply following the recession of 2008/9
Budget deficit and government debt (% of GDP) 8
90 Budget Deficit (LHS)
Gross Debt (RHS)
7
85
6
80
5
75
4
70
3
65
2
60
1
55
0
50 1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
26
Fiscal position: Italy
Italian budget deficit remains markedly lower than pre-1997
Budget deficit and government debt (% of GDP) 16
125 Budget Deficit (LHS)
Gross Debt (RHS)
14
120
12 115 10 110 8 105 6 100 4 95
2
0
90 1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
27
Fiscal position: Spain
Spanish government moved into deficit during and after the recession, following a sustained period of fiscal prudence
Budget deficit and government debt (% of GDP) 12
70 Budget Deficit (LHS)
Gross Debt (RHS)
65
10 60 8
55 50
6
45 4 40 2
35 30
0
25 -2 20 -4
15 1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
28
Fiscal position: Portugal
Portuguese fiscal prolificacy worsened during the recession
Budget deficit and government debt (% of GDP) 12
100 Budget Deficit (LHS)
Gross Debt (RHS)
10
90
8
80
6
70
4
60
2
50
0
40 1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
29
Fiscal position: Greece
Greek budget deficit back to levels last seen in 1980s/ early 1990s, but overall level of debt is significantly higher
Budget deficit and government debt (% of GDP) 16 Budget Deficit (LHS)
140
Gross Debt (RHS)
14 125 12
110
10
95
8
80
6
65
4
50
2
35
0
20 1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
30
Fiscal position: Ireland
High level of Irish government debt largely reflects the costs of bailing out the banks
Budget deficit and government debt (% of GDP) 35
110 Budget Deficit (LHS)
Gross Debt (RHS)
30
100
25
90
20
80
15
70
10
60
5
50
0
40
-5
30
-10
20 1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
31
Fiscal position: Germany
German budget deficit as a % of GDP rose following the financial crisis, but by much less than in other developed countries
Budget deficit and government debt (% of GDP) 10
84 Budget Deficit (LHS)
Gross Debt (RHS)
80
8
76 72
6
68 64
4
60 56
2
52 48
0
44 40
-2
36 1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
32
Euro area: inflation in Germany and Italy since the start of the euro
Low German inflation for much of the euro-era
Harmonised consumer price inflation (% change on a year earlier) 5 Euro area
Germany
Italy
4
3
2
1
0
-1 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
33
Euro area: inflation in Ireland and Spain since the start of the euro
High Spanish and Irish inflation during the euro boom years resulted in relatively loose credit conditions
Harmonised consumer price inflation (% change on a year earlier) 7 Euro area
Ireland
Spain
6 5 4 3 2 1 0 -1 -2 -3 -4 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
34
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