1 Global Policy Institute 欧洲债务危机： 原因，解决方法及对中国的影响 Michele Geraci （杰拉奇） Head of China Program - Global Policy Institute Senior Research Fellow and Adjunct Professor of Finance -Zhejiang University Visiting Assistant Professor of Finance – University of Nottingham, Ningbo Eurozone Crisis ： Origin, Solutions and Impact on China

2 Global Policy Institute 2 Head of China – Global Policy Institute, London Senior Research Fellow and Adjunct Professor of Finance – Zhejiang University Visiting Assistant Professor of Finance – Nottingham University Electronic Engineering – Graduate degree, University of Palermo (University College London) Master in Business Administration (MBA) - Massachusetts Institute of Technology, Sloan School of Management Personal Introduction

3 Global Policy Institute 3 Merrill Lynch Investment Banking – Associate Donaldson, Lufkin and Jenrette – Vice President, Head of Latin America and Co-Head of Europe Telecom Research Bank of America – Director, Co-Head of Europe Telecoms Pali Capital – Managing Director, Head of Europe Telecoms Schroders Asset Management – Head of European Media, Telecom Personal Introduction

4 Global Policy Institute Agenda Introduction to the EU and the Eurozone Reasons for the current crisis Impact on China Recent Events Q&A

5 Global Policy Institute Other Data

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11 Global Policy Institute Other Data

12 Global Policy Institute Europe ： brief history End of WWII 1952 – Treaty of Paris signed (France, Italy, Holland, Belgium and Germany): European Community formally established 1958 – Treaty of Rome signed 1973 – England joins 1992 ： Treaty of Maastricht – path to Eurozone 2012 ： 27 countries are part of the EU 。

13 Global Policy Institute Message 1 ： Not Long after the end of WWI, Europe had been re-united

14 Global Policy Institute EU System Free flow of goods and services Tax-free trade area Free flow of people No custom, no need for ID card (ex Schengen) All citizens from any of the 27 countries enjoys same rights and befenits Message2: EU basically looks as if it was a single country

15 Global Policy Institute Eurzozone:’99 First Stage

16 Global Policy Institute Eurozone ‘01 ： Greece joins

17 Global Policy Institute Eurozone ‘12 ： 17 countries

18 Global Policy Institute Convergence Criteria ：趋同标准 If a country wants to join the Eurozone, it must fulfill certain conditions 如果一个国家想加入欧元区，他就必须满 足几个条件。

19 Global Policy Institute Convergence Criteria ：趋同标准 Inflation Rate （通货膨胀） : <1.5% higher than av. of best three other countries Government Deficit/GDP ( 政府赤字） <3% Government Debt/GDP （政府债务与 GDP 比率） <60% Interest Rates ( 利息率） < 2% more than three lowest countries

20 Global Policy Institute Inflation

21 Global Policy Institute Inflation

22 Global Policy Institute Government Deficit 财政赤字

23 Global Policy Institute Government Deficit

24 Global Policy Institute Government Deficit GRE, ITA, POR almost always exceed criteria

25 Global Policy Institute Debt/GDP four countries “always”exceeded criteria Spain: RE bubble

26 Global Policy Institute Debt/GDP Attention ： France and Germany are not too ‘in good shape, either

27 Global Policy Institute Debt/GDP Eurozone and EU members performance: UK???

28 Global Policy Institute Interest Rates

29 Global Policy Institute Convergence Criteria ： met or not ？ Inflation ： in 2010 ， 12 countries did not meet criteria ！ Gov’t Deficit ： in ’09 and ‘10 ， 15 countries did not meet criteria! Debt/GDP: Greece and Italy ratio always above: EU average always above criteria! Message 3: Eurozone ： basically, never met, almost never, at least

30 Global Policy Institute Why Greece so serious ？ Message 4 ： “reciprocal help”: this concept is now in doubt

31 Global Policy Institute Crisis: Soft reasons 27 countries 27 electoral democracies ， 54 different points of view ！ Culture, history, technology, language ， custom, food ， economic structure ， social structure, etc..not at all the same ！ Message 5 ： Unification process not easy

32 Global Policy Institute Crisis“hard”reasons Relaxed lending practices Excessive investment Risk assessment not proper Global Imbalances Improper fiscal policies Socialise losses Contagion Problems Single Currency!!!

33 Global Policy Institute ReaganomicsBenefits to Chinese exports Accumulation of FX Reserves Trade Imbalance, leading to protectionism Purchase of US bonds Financing US consumption

34 Global Policy Institute Crisis ： 3 examples IrelandExcessive Inv ， Real Estate GreeceCivil Servants and salaries Italyloss of competiveness ， low efficiency ratios

35 Global Policy Institute Reasons for the crisis We must acknowledge that Europe faces two distinct problems: Sovereign Debt crisis and Eurozone Crisis The first one is due to individual countries bad fiscal policies The second is due to structural problems 。 Message 6 ： Debt crisis and Eurozone crisis are two different things

36 Global Policy Institute Conditions for monetary area 1.Relax the mandate of the ECB 2. 财政整合 – Fiscal Integration 3.Fully implement people’s mobility (Dakota) 4. 。。。？？？

37 Global Policy Institute Possible Solutions 1.Generally, Central banks look after inflation and economic growth: a balanced mandate, but.. 2.ECB’s only responsibility is price stability (CPI) ： –Unrealistic goal （ 17 countries ） –ECB is not concerned with stimulating growth 3.AND, even worse, When you have debt you should push inflation up, but that is not what the ECB does

38 Global Policy Institute Possible Solutions 2.Eurozone has no fiscal integration – currently, each country look after its own budget –What about China and the US ？ –A German tax envoy goes to Greece to collect taxes and decides to spend the money in Berlin –Can people accept this ？

39 Global Policy Institute Possible Solutions 3. Realize full people mobility –Easy in theory, not in practice –Language, culture, society, political systems –What about China and the US ？ –Dakota can be emptied, but Belgium?

40 Global Policy Institute Possible Solutions 4. Break up of the EURO ！ –Or, reduce the scope –Re-introduce individual currencies –Every country can choose its own monetary policy （ print money ） –Can depreciate currency ， stimulate exports (Short term is fine) –Painful in the short term ， but successful in the long term PIIGS can leave, or Germany can leave EUROzone

41 Global Policy Institute Possible Solutions Message 7 ： Sacrifice the Euro to Save the European Union

42 Global Policy Institute 欧元区已经解体了

43 Global Policy Institute Impact on China The Chinese economy, as a whole, is becoming less dependent on exports…apparently This year, there maybe a trade deficit Therefore… A slowing demand from Europe for Chinese goods is not going to have a big impact on Chinese economy – True?

44 Global Policy Institute Key points on the RMB Countries have sovereign right to set it exchange rate as they wish (US, Italy, UK) No one knows the real value of the RMB The impact of a possible revaluation of RMB on US exports in far from clear, But, impact on China can be negative

45 Global Policy Institute Plaza Accord and US$ devaluation

46 Global Policy Institute Impact on China

47 Global Policy Institute Impact on China

48 Global Policy Institute Impact on China China should come to the rescue of Europe Not for charity, but to protect it’s own interest Chinese policy makers may underestimate this problem Message 8 ： Chinese policy makers must pay closer attention

Summary 1Not Long after the end of WWI, Europe had been re-united 2EU basically looks as if it was a single country 3Eurozone ： basically, never met, almost never, at least 4“reciprocal help”:this concept is now in doubt 5Unification process not easy 6Debt crisis and Eurozone crisis are two different things 7Sacrifice the Euro to Save the European Union 8Chinese policy makers must pay closer attention

50 Global Policy Institute 最近的时间 2011 年 10 月份：欧盟高峰会：新的财政条 约 2012 年三月份：希腊新的纾困 2012 年四月份：法国大选