the shape of the eu p ost crisis

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The Shape of the EU Post Crisis Peter O’Shea Monash European and EU Centre January 2014

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The Shape of the EU P ost Crisis. Peter O’Shea Monash European and EU Centre January 2014. The Background. Started with US housing crash in 2008 Led to bailouts and loans - US bought bad assets - UK capital injections - EU bailouts funds - PowerPoint PPT Presentation

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Page 1: The  Shape of the EU  P ost Crisis

The Shape of the EU Post Crisis

Peter O’SheaMonash European and EU Centre

January 2014

Page 2: The  Shape of the EU  P ost Crisis

The Background• Started with US housing crash in 2008• Led to bailouts and loans

- US bought bad assets - UK capital injections- EU bailouts funds

• High levels of global coordination: G8 G20

• One outcome was transformation of the FSF to Financial Stability Board as a quasi global regulator

• Kicked off efforts to address regulatory shortcomings and markets supervision

Peter O'Shea
Under the Treasury’s Troubled Asset Relief Program US$700 billion
Peter O'Shea
Comprised of share purchases, loan guarantees and short term loans
Peter O'Shea
comprised of loans, bonds and later the ESM
Peter O'Shea
The first G20 meeting in Washington Nov 2008, later London April 2009
Page 3: The  Shape of the EU  P ost Crisis

GFC History: One Crisis to the Next

Began as a subprime mortgage

crisis in the US when housing

market turned sour.

US subprime mortgages

Financial institutions

Sovereign debt

Sent major banks under, incl. Lehman Bros in Sept 2008. Effects spread to European banks.

Govts step in to maintain liquidity and prevent bank insolvency. Coordinated action at international level G20, IMF; transfer of debt to public sector.

2007-08 2008-10 2010-

Page 4: The  Shape of the EU  P ost Crisis

The EU Response: Three Pillars• Regulatory reforms (financial supervision, banking supervision,

prudential standards, derivatives, securities etc)

• Fiscal coordination (notably the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union and the EC’s “six-pack” legislative reforms) – a small step towards fiscal union?

• Financial Stability and Loan Assistance – now called the ESM based in Luxembourg)

Page 5: The  Shape of the EU  P ost Crisis

Transformed Banking Sector

• Banking supervision overhaul• A big problem earlier identified with the crisis• Regulation of everything from derivatives, directors’

pay, credit ratings agencies, hedge funds, credit default swaps, banking prudential requirements

• Ring-fencing of banks – commercial and retail separation – the UK cannot believe the EU is so slow

• Moves to banking union – ECB as supervisor and maybe deposit guarantee scheme

Page 6: The  Shape of the EU  P ost Crisis

New Shared Economic GovernanceA logical step if union is to complete

The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union ….

• Closer coordination of state fiscal policies• Closer Commission oversight of state budgets• Reinforced deficit and debt levels • A penalty mechanism• Will it work? All based on peer pressure• Growth pact and growth targets - Hollande’s re-election?

Page 7: The  Shape of the EU  P ost Crisis

Financial Stability & Loans- The Greek Loan Facility - The EFSM & EFSF – soon to be ESM – in

Luxembourg (which can be seen from Germany!) - Some facts: no member state has given any

funds to the facilities – they are all loans

- Money is raised via bonds, guaranteed by states, only in default do states pay up- EFSM funds guaranteed by the EU budget, also IMF funds and some bilateral - You can buy bonds on the Luxembourg stock exchange- No different from lending through EIB or IMF

Page 8: The  Shape of the EU  P ost Crisis

Divergent Growth Patterns

Page 9: The  Shape of the EU  P ost Crisis

The Culprit: Government Debt

Page 10: The  Shape of the EU  P ost Crisis

Austerity

Page 11: The  Shape of the EU  P ost Crisis

Unemployment

Page 12: The  Shape of the EU  P ost Crisis

Immigration vs. Emigration

Dubious relationship with unemployment

Also caution urged in drawing causal links

Page 13: The  Shape of the EU  P ost Crisis

Intra-EU Migration… the UK• Most immigrants come from China• Nevertheless some net flows to some countries, incl.

the UK• Spanish migration (27,000 in 12 mths June 13)• Low levels of

UK emmigration

• Growth of resistance:UK caps on immigration from outside EU

Peter O'Shea
a rise of 10,000 compared to year before
Peter O'Shea
ONS Nov 13
Page 14: The  Shape of the EU  P ost Crisis

Anti-EU Sentiment• Rise of anti-EU parties• Rise in anti-EU sentiment• Rise in anti-German sentiment• Anti-Globalisation, Anti-elite,

Anti-Brussels, Anti-Muslim

Page 15: The  Shape of the EU  P ost Crisis

Eurozone vs. Non-Eurozone

• As a result of the fiscal reforms, Nov 2011, which UK refused to join

• Rise of the Eurogroup in political decision-making… and of the ECB

Peter O'Shea
The only one out of 27 countries
Page 16: The  Shape of the EU  P ost Crisis

Conclusion

• Wide ranging reforms after GFC• Led to a closer political EU but greater social

and political tensions• Is EU integration on hold? Yes socially, but

perhaps no politically?