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The Shape of the EU P ost Crisis

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

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The Shape of the EU P ost Crisis

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

  2. 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

  3. GFC History: One Crisis to the Next 2010- 2008-10 2007-08 Began as a subprime mortgage crisis in the US when housing market turned sour. Sovereign debt Financial institutions US subprime mortgages • Govts step in to maintain liquidity and prevent bank insolvency. Coordinated action at international level G20, IMF; transfer of debt to public sector. • Sent major banks under, incl. Lehman Bros in Sept 2008. Effects spread to European banks.

  4. 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)

  5. 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

  6. New Shared Economic Governance A 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?

  7. 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

  8. Divergent Growth Patterns

  9. The Culprit: Government Debt

  10. Austerity

  11. Unemployment

  12. Immigration vs. Emigration Dubious relationship with unemployment Also caution urged in drawing causal links

  13. 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

  14. 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

  15. 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

  16. 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?

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