1 Může eurozóna přežít? Oldřich Dědek Národní koordinátor pro zavedení eura v ČR Leden 2012

2 Benefits from lost exchange rates  More fair and less distortive competitive environment  Devaluations have equivalent effects to across-the-board export subsidies and import surcharges  Discrimination of tradable goods  Absence of internal monetary shocks in Euro Area  Fixed but adjustable regimes incompatible with free capital mobility (Impossible Trinity)  Overshooting and herd behaviour of floating exchange rates  Global economic downturn is a symmetric shock that contradicts OCA prescriptions  Europe versus strong economic centres in USA, china, Japan, India, Russia  One US dollar versus 40 different American dollars  Key players interested in maintaining common currency  Germany (export-oriented economy), France (absence of German hegemony), Italy (stable currency)

3 Real estate bubbles Cumulative increase in housing prices (in real term). OECD, Economics: Key tables from OECD. Criticism of euro: Excessively weak monetary conditions were echoed in real estate bubbles  Limited power of monetary policy to address effectively asset bubbles (likely sharp conflicts with other objectives)

4 Building up of Greek debt  Sharp increase of debt occurred much earlier prior to entry into the Eurozone  Elimination of exchange rate risk does not eliminate the need to evaluate properly credit risks  Back to fragmentation of European financial markets? Economic Comission: General government consolidated debt (excessive deficit procedure) Criticism of euro: No threat of currency crises encourages excessive indebtedness

5 Current account imbalances Gros D.: The long shadow of the fall of the wall, Vox, June 2010 Criticism of euro: Single currency precludes adjustment through exchange rate changes  Germany: former „sick man of Europe“  Devaluations are not the substiute for structural changes  Danger of balance sheet mismatches (Iceland, Hungary)

6 CB bank balance sheet expansion European Central Bank: Monthly Bulletin, February 2002.

7 Institutional descendants of crisis  More integrated regulatory framework - European System of Financial Supervisors  EBA – European Banking Authority  EIOPA – European Insurance and Occupational Pensions Authority  ESMA – European Securities and Markets Authority  Strengthened fiscal surveillance  Amendments to the Stability and Growth Pact  Directive on minimum requirements for national fiscal frameworks  Strengthened macroeconomic surveillance  European Systemic Risk Board (ECB)  System for prevention and correction of macro-imbalances (Excessive Imbalance Procedure)  European Semester  Euro bulwark  EFSM – European Financial Stabilisation Mechanism  EFSF – European Financial Stability Facility  ESM – European Stability Mechanism  Pact for Euro  Further far-reaching changes are in the pipeline