Curing Europe s Growing Pains: Which Reforms? Luc Everaert Assistant Director European Department International Monetary Fund Brussels, 21 November Copyright rests with the author. All rights reserved.
Growth Emergency: Death and Debt Average and Distribution Reform dynamics: Crisis = opportunity? Short-term pain for long-term gain Traps and space Which reforms? Confidence Close the gaps Competition and integration
70 Figure 1. Old-age Dependency Ratio 1/ Germany 20 Figure 2. Impact of a Negative Growth Shock on Gross General Government Debt, 2016 (Percent of GDP) GRC 2035 60 50 40 30 Netherlands Finland Slovenia Portugal France Spain Greece Malta EA17 Belgium Developed Slovakia Estonia Luxembourg Ireland Cyprus Austria Italy Impact of lower -growth scenario on debt 15 10 NLD AUT CYP FIN MLT SVN SVK LUX BEL DEU ESP FRA ITA PRT IRL 20 World World EST 10 10 20 30 40 50 60 70 2010 Developed 5 0 50 100 150 200 Baseline debt to GDP Source: United Nations. 1/ Ratio of population age 65+ per 100 population of age 20-64. Sources: IMF staff estimates and projections. Note: Shock assumes that GDP growth is 1 percentage point below the baseline scenario from 2011 to 2016.
Selected Advanced Economies: Differential with the United States, 2006-08 (Percentage points) Differential in GDP Per Capita Differential in Labor Utilization dd Euro Area France and Germany Italy and Spain Northern Europe 1/ dd Euro Area France and Germany Italy and Spain Northern Europe 1/ d d d dd d dd dd dd Labor utilization Labor productivity Source: Mourre (2009), European Commission, and IMF staff calculations. 1/ GDP-weighted average of Denmark, Sweden and UK. dd dd dd dd Unemployment Participation Rate Hours worked Demographics
Figure 3.GDP Per Capita and Labor Utilization: Differential with EU, 2006-08 (Percentage points) Differential in GDP Per Capita 25 Differential in Labor Utilization 40 30 20 10 0-10 20 15 10 5 Demographics Hours worked Participation Rate Unemployment -20 0-30 -40-50 Labor productivity Labor utilization -5-10 -60 East North South Other -15 East North South Other Source: Mourre (2009), European Commission, and IMF staff calculations. Note: East EU comprises Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic; North EU comprises Austria, Belgium, Denmark, Finland, France, Germany, Luxembourg, Netherlands, Sweden; South EU comprises Cyprus, Greece, Italy, Malta, Portugal, Slovenia, Spain; and Other EU comprises Ireland, United Kingdom. Aggregations are GDP weighted.
80 Figure 4. Employment Rate, 2010 70 East North South Other 60 50 40 30 20 10 0 15-64 Female 15-24 55-64 Source: Eurostat and IMF staff calculations. Note: East EU comprises Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic; North EU comprises Austria, Belgium, Denmark, Finland, France, Germany, Luxembourg, Netherlands, Sweden; South EU comprises Cyprus, Greece, Italy, Malta, Portugal, Slovenia, Spain; and Other EU comprises Ireland, United Kingdom. Aggregations are GDP weighted.
Crisis = opportunity? Short-term pain for long-term gain Traps and space
Figure 10. Structural Reforms Gaps in European Economies: A Heatmap 1/ Core Euro Area Southern Euro Area Other Euro Area Selected Comparators Germany France Netherlands Belgium Italy Spain 2/ Portugal Greece Austria Finland Ireland Denmark Sweden U.K. U.S. Japan Medium term Labor market inefficiency Business regulations Network regulation Retail sector regulation Professionnal services regulation 1.0 2.0 1.0 1.0 2.0 2.0 2.0 2.0 1.0 0.0 0.0 0.0 1.0 0.0 0.0 0.0 1.0 1.0 0.0 2.0 1.0 2.0 1.0 2.0 1.0 1.0 0.0 0.0 0.0 0.0 0.0 1.0 0.0 1.0 0.0 0.0 1.0 0.0 1.0 2.0 0.0 1.0 2.0 0.0 0.0 0.0 0.0 1.0 0.0 1.0 0.0 2.0 1.0 1.0 1.0 2.0 2.0 1.0 0.0 1.0 0.0 0.0 1.0 0.0 2.0 1.0 0.0 1.0 2.0 1.0 1.0 2.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Long term Institutions and contracts Human capital Infrastructure 0.0 1.0 0.0 1.0 2.0 1.0 2.0 2.0 0.0 0.0 1.0 0.0 1.0 0.0 1.0 1.0 1.0 1.0 0.0 0.0 2.0 2.0 2.0 2.0 1.0 0.0 0.0 0.0 0.0 1.0 1.0 0.0 0.0 0.0 0.0 1.0 2.0 0.0 1.0 2.0 1.0 1.0 2.0 0.0 0.0 0.0 0.0 0.0 Innovation 0.0 0.0 0.0 0.0 1.0 2.0 2.0 2.0 1.0 1.0 1.0 0.0 0.0 0.0 0.0 0.0 Memo item: GDP per Capita level (2000-08, US=100) 75 71 85 77 70 65 49 58 80 74 89 80 78 77 100 72 Sources: OECD; World Economic Forum; Fraser Institute; and IMF staff calculations. 1/ See IMF, 2010d for a description of the methodology, and of the detailed components of the labor market heatmap. 2/ The indicators do not incorporate the labor market reform implemented in Spain in 2010.
Table 2. Weighted Average Mark-ups U.S. Euro Area Germany France Italy Spain Manufacturing and construction 1.28 1.18 1.16 1.15 1.23 1.18 Market services 1.36 1.54 1.54 1.26 1.87 1.37 Research and development 1.62 2.11 1.11 1.11 2.40 2.14 Financial intermediation 1.39 1.56 1.88 1.43 1.42 1.29 Air transport 1.16 1.64 1.13 1.11 1.84 1.14 Retail 1.19 1.42 1.12 1.24 1.95 1.53 Source: Christopolou and Vermeulen (2008).
60 Figure 9. Export or Goods, 1990-2010 (Percent of GDP) 50 40 30 East North South Other 20 10 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sources: IMF, World Economic Outlook database; and IMF staff calculations. Note: East EU comprises Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic; North EU comprises Austria, Belgium, Denmark, Finland, France, Germany, Luxembourg, Netherlands, Sweden; South EU comprises Cyprus, Greece, Italy, Malta, Portugal, Slovenia, Spain; and Other EU comprises Ireland, United Kingdom. Aggregations are GDP weighted.
6 Figure 5. Convergence across EU Economies Change in real GDP per capita, 2000-10 (Annulaized percent) 5 4 Bulgaria Romania Latvia Lithuania Estonia Poland Slovak Republic y = -6.8761x + 30.992 R² = 0.8285 Czech Republic 3 East Slovenia North Hungary 2 Greece South Sweden Finland Cyprus Other Netherlands Austria 1 Malta UK Germany Spain Ireland Belgium Portugal France 0 Denmark 3.6 3.7 3.8 3.9 4 4.1 4.2 4.3 4.4 4.5 Italy -1 Source: WEO. ¹Data for Malta are for 2000. GDP per capita (in log), PPP, US dollar, 1999 ¹
31 Figure 6. Investment Ratios and initial Income Conditions 29 Estonia y = -0.0002x + 26.122 R² = 0.3375 GFCF/GDP ratio average 2000-2010 (Percent) 27 25 23 21 19 17 Latvia Romania Bulgaria East North South Other Spain Czech Republic Slovenia Slovak Republic Portugal Ireland Hungary Lithuania Italy Austria Belgium Poland Greece Denmark Malta Finland France Netherlands Cyprus Germany Sweden United Kingdom 15 0 5000 10000 15000 20000 25000 30000 GDP per capita PPP, US dollar, 1999 1/ Sources: WEO and IMF staff calculations. 1/ Data for Malta are for 2000.
3 Figure 7. Convergence across EA Economies Change in real GDP per capita, 2000-10 (Annulaized percent) 3 2 2 1 1 Slovenia Greece Portugal Malta Cyprus Spain Finland Belgium North EA South EA Germany France y = -3.83x + 17.627 R² = 0.1797 Austria Netherlands Ireland 0 4.2 4.25 4.3 4.35 4.4 4.45 4.5 Italy -1 GDP per capita (in log), PPP, US dollar, 1999 1/ Source: WEO. 1/ Data for Malta are for 2000.
Table 1. Average Annual Real Labor Productivity Growth, 2000-2007 (Percent) Euro area average Germany Greece Italy Portugal Spain Market economy 0.8 1.6 2.9 0.0 0.9 0.9 Total manufacturing (excl. electrical) 4.4 2.8 1.4 0.3 1.7 1.7 ICT 4.4 5.8 6.2 4.4 7.1 3.2 Construction 0.5-0.3 1.9-0.9-0.9-0.4 Market services 1.4 0.6 2.5-0.5-0.2 0.8 Distribution 1.7 2.1 3.4 0.1-0.9 0.8 Finance 2.2 1.1 6.0 3.0 6.6 8.0 Personal services 1.6-0.6 1.1-2.0-1.3-1.0 Source: Chen, Milesi-Ferretti and Tressel (2011).
1.2 1 0.8 0.6 0.4 0.2 Figure 11. Patent Applications, 2009 1/ (Per 1000 working age persons) 0 Cyprus Malta Portugal Greece Belgium Spain Luxembourg Italy Netherlands Slovenia Ireland France Austria Finland Germany United States Source: WDI. 1/ Data for Portugal are for 2008. Blue for North EA countries and green for South EA countries.
40 Figure 8. Euro Area: Appreciation of REER (ULC Manufacturing Based), 2000 07 1/ (Percent) 30 20 10 0-10 -20-30 Finland Germany Ireland Austria Slovenia France Netherland BLEU 2/ Portugal Malta Spain Italy Cyprus Greece Sources: European Commission; and IMF staff calculations. 1/ Real effective exchange rates are relative to the rest of euro area and based on annual data. Blue for North EA countries and green for South EA countries. 2/ BLEU stands for Belgium Luxembourg Economic Union.