GROWTH AND CRISIS IN THE European Policy Response: The Euro Economics 1490 GROWTH AND CRISIS IN THE WORLD ECONOMY with Professor Dale W. Jorgenson Lecture 14: October 18, 2016 European Policy Response: The Euro Harvard University Department of Economics - Fall 2016

THE WORLD ECONOMY: GROWTH AND CRISIS Lecture 14: October 18, 2016 European Policy Response: The Euro THE WORLD ECONOMY: GROWTH AND CRISIS Comparing Economies across the World and over Time. 2. The Great Debate over the Financial and Economic Crisis. 3. The European Slowdown and the Crisis in Europe. 4. Asian Economic Miracles: Will They Continue? 5. Sustainability of Economic Growth. 6. World Economic Outlook.

Europe and the United States: Convergence and Divergence Lecture 14: October 18, 2016 European Policy Response: The Euro Europe and the United States: Convergence and Divergence 11. U.S. Growth Resurgence and European Slowdown. 12. European Competitiveness. 13. Europe 2020 and the Single Market. 14. European Policy Response: The Euro. 15. European Policy Response: Brexit.

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro TWO ECONOMIC CRISES IN EUROPE The U.S. Crisis Was Transmitted Internationally by the Collapse of Inter-Bank Lending. This Was Followed by the Collapse of Trade in Late 2008 and Early 2009. Bank Bailouts Were Handled by Local Authorities – Governments and Central Banks. The Sovereign Debt Crisis in Europe Began with the Greek Bailout in May 2010.

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro THE SECOND PHASE OF THE CRISIS Signs of Financial Distress Emerged in Europe in 2011. European Bank and Sovereign CDS Prices Revealed Possible Solvency Problems European Central Bank Broadened Its Support of Sovereign Debt A Second Recession in Europe Has Taken Hold; Growth Prospects for Europe Are Dim

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro TIME LINE FOR EUROPEAN SOVEREIGN DEBT CRISIS Greece    May 2010-March 2016 245.6 B Ireland  November 2010-December 2013 68.2 B Portugal   May 2011-May 2014 76.4 B Cyprus    December 2011-December 2012 May 2013-March 2016 2.5 B 10.0 B Spain July 2012-December 2013  41.3 B

A GLOSSARY OF EUROPEAN INSTITUTIONS Lecture 14: October 18, 2016 European Policy Response: The Euro ALPHABET SOUP: A GLOSSARY OF EUROPEAN INSTITUTIONS EFSF   European Financial Stability Facility May 2010 EFSM European Financial Stabilization Mechanism January 2011 ESM   European Stability Mechanism (Replaced EFSF and EFSM) September 2012 EFC European Fiscal Compact March 2011

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro EUROPEAN SYSTEM OF FINANCIAL SUPERVISORS (ESFS) ESRB  European Systemic Risk Board January 2011 EBA European Banking Authority EIOPA  European Insurance and Occupational Protection Authority ESMA European Securities and Markets Authority

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro LONDON SPEECH   Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. Mario Draghi, President of the European Central Bank, London, July 26, 2012.

MARIO DRAGHI: BIOGRAPHICAL HIGHLIGHTS Lecture 14: October 18, 2016 European Policy Response: The Euro MARIO DRAGHI: BIOGRAPHICAL HIGHLIGHTS   Born: Rome, Italy, 1947. Ph.D., MIT, 1976. Professor of Economics, University of Florence, 1981-1994. Fellow, Institute of Politics, Kennedy School of Government, 2001. Governor, Bank of Italy, 2006-2011. Chairman, Financial Stability Board, 2009-2011. President, European Central Bank, 2011-

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro EUROPEAN CENTRAL BANK POLICY May 2010: Begins Outright Purchases of Government Debt December 2011: Expanded Long Term Refinancing Operation for Banks September 2012: Outright Monetary Transactions 2012-2013: Lowered Policy Rate in Steps to 0.25%

EUROPEAN POLICY RESPONSE TO THE SOVEREIGN DEBT CRISIS Lecture 14: October 18, 2016 European Policy Response: The Euro EUROPEAN POLICY RESPONSE TO THE SOVEREIGN DEBT CRISIS   European Union Participated in Sovereign Debt Bailouts Through the EFSF and EFSM. The EFSF and EFSM Were Superseded by the ESM EFC Strengthened the Stability and Growth Pact ECB Provided Support for Banks through Conventional And Unconventional Monetary Policy

EUROPEAN BANKING UNION Lecture 14: October 18, 2016 European Policy Response: The Euro EUROPEAN BANKING UNION Four Essential Components: Single Supervisor, Single Regulator, Single Resolution Mechanism, Single System of Deposit Insurance October 2014: ECB Examination of Balance Sheets of 130 European Banks with 85% of EU Deposits November 2014: ECB Provides Single Supervisory Mechanism (SSM) for 130 Largest Banks. January 2016: Single Resolution Mechanism by ECB.

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro THE FINANCIAL CRISIS IN EUROPE The financial crisis originated in the U.S., but the impact was more severe in Europe The policy response was more diffuse in Europe The European recovery was weaker The sovereign debt crisis emerged in 2010, beginning with the Greek bailout in May

THE SECOND PHASE OF THE CRISIS Lecture 14: October 18, 2016 European Policy Response: The Euro THE SECOND PHASE OF THE CRISIS Indications of Renewed Financial Distress in Europe Began to Emerge in 2011. This Involved Bank Debt and Sovereign Debt, Especially in the Periphery Countries. The ECB Responded by Providing Financial Support for Sovereign Debt. Initially This Was Indirect Support through Bank Lending, but Became Direct with the OMTs in 2012

European Policy Response: The Euro Lecture 14: October 18, 2016 European Policy Response: The Euro RECOVERY IN EUROPE Recovery from the Second Recession Has Been Slow and Limited So Far to Exports. Europe Is Developing a New Framework for Financial Regulation. A Fiscal Union Has Been Discussed, but Little Progress Has Been Made. Structural Reforms Like a Single Market in Services Appear to Be on Hold.