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J.P.Morgan ChaseS
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The Euro-Zone Crisis and
the Global Economy
Prof. Jacob A. Frenkel
Chairman, JPMorgan Chase InternationalChairman, Board of Trustees, G30
Former Governor, Bank of Israel
The 12th Annual Herzliya ConferenceHerzliya, IsraelJanuary 30-February 2, 2012
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Global GDP Growth (%)
-1
0
1
2
3
4
5
6
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
(Percent change)
Forecasts
World Growth
Source: IMF, last update Jan 24 2012, WEO (2011 & 2012 Forecast)
2011: 3.8%2012: 3.3%
2010: 5.2%2009: -0.7%
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Real GDP Growth (%) World Economy
Source: IMF, last update Jan 24 2012, WEO (2011 & 2012 Forecast)
Country 2000 2005 2008 2009 20102011 2012
World 4.8 4.6 2.8 -0.7 5.2 3.8 3.3
Industrial Countries 4.2 2.7 0.1 -3.7 3.2 1.6 1.2
Developing Countries 5.9 7.3 6.0 2.8 7.3 6.2 5.4
GDP Growth(Avg Annual Growth Rate, Constant Prices)
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Real GDP Growth (%), Selected
Countries
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(Annual % Change)
Forecasts US, GDP GrowthEuro Area, GDP Growth Japan, GDP Growth
China, GDP growth India, GDP growth
China,2012:8.2%
Japan,2012:1.7%
Euro Area,2012:-0.5%
US, 2012:1.8%
India,2012:7.0%
Source: IMF, last update Jan 24 2012 , WEO (2011 & 201 2 Forecast)
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Global GDP Shares
UnitedStates
Japan, 6%E U - 27
C h i n a
Ind ia, 6%
Lat inAmer ica
Ot h e rAdvancedEconomies
Ot h e rEmergingEconomies
2011 IMF Forecast
2 0 %
1 8 %8 %
9 %
1 4 %
2 0 %UnitedStates
Japan
E U - 27
China , 4%Ind ia, 3%
Lat inAmer ica Ot h e rAdvancedEconomies
Ot h e rEmergingEconomies
1990
2 5 %
1 0 %
2 9 %
9 %1 2 %
8 %
Source: IMF, WEO Database, last update Sep 2 0 20 11, WEO
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Current Account of Balance of Payments
-900
-700
-500
-300
-100
100
300
500
700
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(U.S. dollars, bill.)
IMF Forecasts
Euro areaUnited States
Middle East, N. Africa, & Russia
Asia
Middle East,N. Africa, &
Russia,2012:$312B
Asia,2012:$736B
Eu ro area,2012:$56B
US, 2012: -$329B
US Spends
Europe Balances
Asia & Oil Exporters Save
Source: IMF, last update Sep 20 2011, WEO (201 1 & 2012 Forecast)
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European Union Exports by Destination
U S, 5 6.6%
China,5 .2%
Asia exChina,38 .2%
2000
U S, 38.3%
China,20 .6%
Asia exChina,41.1%
2011
Source: Eurostat, Last Observation: Sep 2011
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Unemployment Rate (%): Selected Euro
Area Countries
0
6
12
18
24
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(% of Labor Force)
Germany Greece Ireland Spain Italy
Spain:22.9%
Italy:8.6%
Greece:18.2%
Ireland:14.3%
Germany:6.8%
Source: Eurostat, Last Observation: Ireland, Germany (12/11); Italy, Spain (11/11) ; Greece ( 10/11)
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Relative Unit Labor Costs,
Manufacturing Sector
90
100
110
120
130
140
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(index, Q1 2001 = 100)
Germany Greece Italy Spain Euro Area
Italy:133
Greece:112
Spain:123
EuroArea:121
Germany:98
Stage 2
EMU
Euro
adoption
Source: OECD December 2010, Last observation: Q4/2010
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Fiscal Positions: Net Debt Select Euro
Area Economies
0
20
40
60
80
100
120
140
160
180
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(Percent of GDP)
IMF Forecast Germany GreeceIreland Spain Italy
Greece,2012:175.4%
Spain,2012:58.7%
Ireland, 2012:104.6%
Italy, 2012:100.7%
Germany,2012:57.0%
Source: IMF, WEO Database, last update Sep 20 201 1, WEO (2011 & 2012 Forecast)
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Euro Area Current AccountBalance (% of GDP)
-12
-10
-8
-6
-4
-2
0
2
4
6
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(Percent of GDP)
IMF Forecast
Germany
Ireland, Spain, Greece, & Portugal
Italy
Euro area
Germany,201 2: 4.9%Germany,201 2: 4.9%
GI PS, 2012:-3.4%
Germany,201 2: 4.9%
Italy, 2012:-3.0%
Eu ro area ,201 2: .4%
Source: IMF, WEO Database, last update Sep 20 201 1, WEO (2011 & 2012 Forecast)
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Current Account Balance and Budget
Deficit (% of GDP 2010)
Source: IMF, last update Sep 20 2011, WEO (201 1 Forecast)
Austria
Belgium
Euro Area
France
Germany
Greece
Ireland
Italy
Netherlands
Portugal
Spain
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
-9-7-5-3-1
CurrentAccountBa
lance(%o
fGDP),2011
General Government Balance (% of GDP), 2011
"Bad" - Zone"
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Gross National Saving Rate and Budget
Deficit (% of GDP 2010)
Austria
Belgium
Euro Area
France
Germany
Greece
Ireland
Italy
Portugal
Slovak Republic
Spain
0
5
10
15
20
25
30
-11-9-7-5-3-1
GrossNationalSaving
Rate(%o
fGDP),2011
General Government Balance (% of GDP), 2011
"Bad" - Zone"
Source: IMF, last update Sep 20 2011, WEO (2011 Forecast); Eurostat (2011 forecast, EA13)
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Gross Government Debt and Budget
Deficit (% of GDP 2010)
Austria
Belgium
Euro Area
France
Germany
Greece
IrelandItaly
Netherlands
Portugal
Spain
10
30
50
70
90
110
130
150
170
-12-10-8-6-4-20
GrossGeneralGovernmentDebt(%o
fGDP),2011
General Government Balance (% of GDP), 2011
"Bad" - Zone"
Source: IMF, last update Sep 20 2011, WEO (201 1 Forecast)
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10yr Government Bond Yield Spread
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
(spread over German Bunds, bps)
Greece:3224bp
12/21/2011p eak: 3578bp
Source: Bloomberg Market Data, Last Observation: Jan 30, 2 012
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10yr Government Bond Yields
1
2
3
4
5
6
7
8
Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
(Yield, %-pts)
Germany Italy
Italy:6.094%
Germany:1.793%
Source: Bloomberg Market Data, Last Observation: Jan 30, 201 2
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European Sovereign and Corporate CDS
Spreads
Source: Markiit iTraxx data, Last Observation: Jan 27, 2012
0
50
100
150
200
250
300
350
400
Oct-2009 Feb-2010 Jun-2010 Oct-2010 Feb-2011 Jun-2011 Oct-2011 Feb-2012
(CDS, spread in basis points)
iTraxx Western Europe SovX (sovereign), generic 5y
iTraxx Europe HG Corporate, generic 5y
iTraxx Europe Senior Financial, generic 5y
Financial:211bp
Corporate:141bp
Sovereign:323bp
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EUR/USD Spot Exchange Rate
0.800
0.900
1.000
1.100
1.200
1.300
1.400
1.500
1.600
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(USD/EUR)
USD/EUR:1.314
Changeoverto euro
IMF approvesfir st loan to
Greece
Lehmancollapse
Source: Bloomberg Market Data, last observation: January 27, 201 2
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Coordinated Global Rate Cuts
-1
0
1
2
3
4
5
6
2005 2006 2007 2008 2009 2010 2011 2012
(%)
United Kingdom Japan Eurozone Canada United States
EUR,1.00%
Canada,1.0%
Japan0.1%
US0.25%
UK 0.5%
Source: Bloomberg Market Data, Last observation: 30 Jan, 20 12
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Total Assets of Key Central Banks(indexed levels)
50
100
150
200
250
300
350
400
Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11
(indexed, end of June 2007 = 100)
BoE ECB Federal Reserve
BoE: 378
Fe d: 336
ECB : 224
Source: NSI's, Last Observation: Fed, BoE (Jan 25, 2012 ); ECB (Jan 20, 2012 )
Current assets
Billions of $
Total 6,893
Of Which:
Fed 2,922
BoE 472
ECB 3,499
U S U l t b L l f
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U.S. Unemployment, by Level of
Education
0
2
4
6
8
10
12
14
16
2000 2005 2010
(Unemployment Rate in %)
No high school diploma
High school diplomaTotal
Some college
College degree or higher
No HS
diploma:13.8%
HS
diploma:
8.7%
Total:
8.5%
Some
college:
7.7%
College
or
higher:
4.1%
Source: Bureau of Labor Statistics, Last Observation: December 201 1
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U.S. Unemployment, by Duration
Source: Bureau of Labor Statistics, Last Observation: December 2011
0
10
20
30
40
50
2000 2002 2004 2006 2008 2010 2012
(Share of total unemployed)
Less than 5wks
5 to 14wks
15 to 26wks
27 weeks or more
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World Trade Volume
-12
-7
-2
3
8
13
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
(Percent change)
IMF Forecasts World trade volume
Source: IMF, av. Annual growth rates, last update Jan 24 2012 , WEO (2011 & 2012 Forecast).
2012: 3.8%
2009: -10.7%2010: 12.7%2011: 6.9%