Debt, euro and future Prof. Carl B Hamilton M.P., Chairman, Committee on EU Affairs, and Member of Committee on Finance. 03/10/2011
Crisis • To blame – euro or debt? • Finland (in) and Sweden (out). Performance.
• Asymmetric shocks, optimal currency area and all that – the wrong focus! • It’s the debt risks, stupid • Countries, banks or both 03/10/2011
Likartad BNP-utveckling i Finland och Sverige 8 6
BNP utvekcling, %
4 2
-4 -6 -8 -10 책r
03/10/2011
20 10 20 12 p
20 08
20 06
20 04
20 02
20 00
19 98
19 96
19 94
-2
Finland
19 92
19 90
0
Sweden
Two types of problem countries • Insolvent countries. • What to do? • The fate of banks, also in other coutries • The county´s future
• Iliquid countries. What to do? • Exist the money? EFSF.
• Keep up pressure for needed reforms. How? (Later) 03/10/2011
Low growth • No solution of crisis problems without growth? • No growth without reforms! • But, what about short term expansionary policies? OK-countries: expand! Others: commit credibly to reforms! 03/10/2011
Long run changes of eurozon • More co-ordinated and demading fiscal and financial policies • Budget deficit limits and debt limits; automatic and through EU-Commission • The market must fully determine interest rates • Bank supervison, national and cross borders
• The balance – not budget posts and taxes essential
03/10/2011
Sweden outside – Finland inside • Would have been problems also without the euro – but different ones (reason for snake, EMS, etc) • Trade gains from euro very large, and unexpected • Sweden outside the economic core of Europe. A break with the past. • Trade, financial ties and commercial policy closer than ever before 03/10/2011