Presentation is loading. Please wait.

Presentation is loading. Please wait.

Goldman Sachs Global Economics, Commodities and Strategy Research 2010 1.

Similar presentations


Presentation on theme: "Goldman Sachs Global Economics, Commodities and Strategy Research 2010 1."— Presentation transcript:

1 Goldman Sachs Global Economics, Commodities and Strategy Research

2 Goldman Sachs Global Economics, Commodities and Strategy Research The Credit Crisis and the Euro Ben Broadbent Managing Director & Senior European Economist September 2010

3 Goldman Sachs Global Economics, Commodities and Strategy Research Summary  Europe recovering but sharp divergence within the Euro- zone.  Partly industrial composition: investment-driven cycle so sharpest “V”s in capital-goods-producing countries.  Credit crunch has also blown away a decade of interest- rate convergence between “core” and “periphery”.  Eurozone needs (i) more fiscal discipline ahead in good times &/or (ii) more support in bad times. Will politics allow this?

4 Goldman Sachs Global Economics, Commodities and Strategy Research Estimated banks’ losses, March 2009  Eurozone banks:EUR 920bn (10.1% of GDP)  UK banks:GBP 210bn (14.6%)  Total:USD 1.4tn (15.1%)

5 Goldman Sachs Global Economics, Commodities and Strategy Research Domestic Demand and Growth Contributions, Last Decade Source: GS Global ECS Research

6 Goldman Sachs Global Economics, Commodities and Strategy Research Chinese Growth: Not Just Exports

7 Goldman Sachs Global Economics, Commodities and Strategy Research US not as central as it once was Source: GS Global ECS Research

8 Goldman Sachs Global Economics, Commodities and Strategy Research Very aggressive policy response

9 Goldman Sachs Global Economics, Commodities and Strategy Research No comparison with Japan

10 Goldman Sachs Global Economics, Commodities and Strategy Research Not the Great Depression II for output...

11 Goldman Sachs Global Economics, Commodities and Strategy Research or for asset prices

12 Goldman Sachs Global Economics, Commodities and Strategy Research Bounce in asset prices has helped banks’ balance sheets

13 Goldman Sachs Global Economics, Commodities and Strategy Research More like other post-war financial crises

14 Goldman Sachs Global Economics, Commodities and Strategy Research Divergence

15 Goldman Sachs Global Economics, Commodities and Strategy Research Partly reflects industrial composition

16 Goldman Sachs Global Economics, Commodities and Strategy Research But markets price of sovereign debt has also diverged significantly

17 Goldman Sachs Global Economics, Commodities and Strategy Research Spill-over impact on banks’ funding costs

18 Goldman Sachs Global Economics, Commodities and Strategy Research Divergence follows years of convergence

19 Goldman Sachs Global Economics, Commodities and Strategy Research No evidence EMU deepened trade integration

20 Goldman Sachs Global Economics, Commodities and Strategy Research But it did help compress bond yields

21 Goldman Sachs Global Economics, Commodities and Strategy Research And as income converged, current accounts diverged

22 Goldman Sachs Global Economics, Commodities and Strategy Research Low rates encourage domestic demand

23 Goldman Sachs Global Economics, Commodities and Strategy Research Strong demand raises domestic costs

24 Goldman Sachs Global Economics, Commodities and Strategy Research …causing declines in the periphery’s export market shares

25 Goldman Sachs Global Economics, Commodities and Strategy Research And sharp deteriorations in external positions

26 Goldman Sachs Global Economics, Commodities and Strategy Research Not a problem for the Eurozone as a whole

27 Goldman Sachs Global Economics, Commodities and Strategy Research Hefty adjustments needed to achieve stabilization of debt levels

28 Goldman Sachs Global Economics, Commodities and Strategy Research Decline in interest rates not restricted to the Eurozone

29 Goldman Sachs Global Economics, Commodities and Strategy Research Reform: The options  Nothing: let countries restructure (if they have to)  Piecemeal: More support/control ex post (EFSF plus EC intervention); tighter standards ex ante (Van Rompouy)  Wholesale:Full fiscal federalism (note US example: political union precedes monetary union).  Euro break-up

30 Goldman Sachs Global Economics, Commodities and Strategy Research Macro rebalancing Keynes (Bretton Woods, 1946): “the process of adjustment is compulsory for the debtor and voluntary for the creditor. If the creditor does not choose to make, or allow, his share of the adjustment, he suffers no inconvenience. For whilst a country’s reserve cannot fall below zero, there is no ceiling which sets an upper limit”.

31 Goldman Sachs Global Economics, Commodities and Strategy Research Disclaimer I, Ben Broadbent, hereby certify that all of the views expressed in this report accurately reflect personal views, which have not been influenced by considerations of the firm’s business or client relationships.


Download ppt "Goldman Sachs Global Economics, Commodities and Strategy Research 2010 1."

Similar presentations


Ads by Google