1. Economic policy in Europe
Minister for Finance Anders Borg
November 5, 2013
Finansdepartementet

2. Global growth prospects
• More stable recovery but subdued growth expectations in
the near term
– Euro zone out of recession, but fragmented financial systems
and high levels of public debt hamper growth
– United States: Economic activity is gradually picking up
supported by recovery in housing market
– Emerging markets are expected to grow at a slower pace
•
More stable recovery but downside risks remain
– Uncertainty surrounding US fiscal policy could harm global
recovery
– Risk for continued financial turbulence in emerging markets due
to expectations of tapering of US monetary policy
Finansdepartementet

3. IMF: Global growth in low gear
10
GDP growth rate, per cent. Forecast from 2013
8
6
4
2
0
-2
-4
-6
Emerging markets
USA
Euro area
Sweden
Source: IMF
Finansdepartementet

4. Improved fiscal conditions
Interest spreads to German 10 year bonds
Per cent. Source: Ecowin
Greece
Ireland
Italy
Portugal
40
Sweden
Denmark
Finland
Belgium
Germany
Austria
Italy
Netherlands
France
Spain
Spain
Portugal
United Kingdom
Greece
Ireland
Public deficits 2010 and 2014. Per cent of GDP.
Source: EU-Commission
5
35
30
25
0
20
-5
15
-10
-15
2010
2014
-31
10
5
0
2010-01
2010-07
2011-01
2011-07
2012-01
2012-07
2013-01
2013-07
-30,9
Terms of trade
Unit labour cost
Per cent of GDP, Forecast for 2014. Source: OECD
Index 2009 = 100. Source: OECD
Spain
Greece
Ireland
Italy
Portugal
110
Italy
Spain
Ireland
6
4
2
0
-2
-4
-6
-8
-10
-12
105
100
95
90
85
80
Finansdepartementet
2009
2010
Greece
2011
2012
2013
2014
2010
2011
2012
2013
2014

5. Fragmented financial systems
hamper recovery in crisis countries
•
Weak financial system
with bad assets impair
transmission of
expansionary monetary
policy
•
Restricted credit
availability to private
sector hampers
investment and growth
Source: IMF World Economic Outlook , 2013
Finansdepartementet

6. Restoring household and business
confidence in the banking system
• Reveal banks’ bad assets and suppressed balance sheets
– Asset quality review and ECB stress tests in 2014
•
Pan-European bank supervision
–
•
Higher capital requirements increase resilience of the
banking system
–
•
Single Supervisory Mechanism
CRR / CRD 4 enter into effect in 2014
Effective and orderly handling of banks in distress
Finansdepartementet

7. Bank assets, percent of GDP,
December 2011
Source of funding, Swedish banks
Swedish krona
Source: ECB, Swiss national bank and Riksbanken
House prices since 1995
304
285
Foreign currency
Source: Riksbanken, Statistics
Sweden
Household debt to disposable
income ratio, 2012
223
195 194
168
146
135 134
124 121
108 101 100
92 87
Finansdepartementet
Source: OECD
Source: OECD
74

8. Sweden: Policies for financial stability
and increased supply of housing
• More robust financial system
– Stonger supervision
– Higher capital and liquidity requirements
– Minimum risk weights for mortgages
• Efficient crisis resolution mechanisms
• Housing market reforms
– Rent-setting for new appartments and sub-letting
– Faster planning processes for new developments
– Improved incentives for new-builds (e.g. in Stockholm)
Finansdepartementet

9. Long term growth – a challenge for
Europe
• Highly regulated product and service
markets
• Rigid labour markets
• Sub-par performance of education systems
• Lack of entrepreneurship and innovation
• Under-investments in infrastructure and
research
• Heavy tax burdens on labour and capital
Finansdepartementet

10. Structural labour market problems in
Euro area
12
NAIRU (USA) and NAWRU (EZ)
11
10
9
8
7
6
5
4
97
99
01
03
05
USA
07
09
11
Euro area
Källa: CBO and European Commission
Finansdepartementet
13

11. Finansdepartementet
75
61
44
42
76
Austria
Finland
Denmark
Sweden
EU15 except Luxembourg
Source: EU-commission autumn forecast 2013
127
134
Portugal
Italy
Public sector debt 2014. Share of GDP, per cent
176
Belgium
Italy
-2,6
-2,7
Spain
United Kingdom
-5,3
-5,9
Ireland
Portugal
-4,0
-5,0
France
-3,8
Netherlands
Finland
-2,3
-3,3
Greece
-2,0
Austria
Denmark
Sweden
Germany
Public deficits 2014. Per cent of GDP
Greece
121
101
Belgium
Ireland
100
97
United Kingdom
Spain
95
Germany
France
77
Netherlands
-1,9
-1,7
-1,2
0,1
High levels of public debt in Europe

12. Eurozone economies in need of
structural reforms
•
Reforms to strengthen public finances
–
–
Impose stricter conditions surrounding unemployment benefits
–
Reduce indexation of government expenditures
–
•
Raise retirement age and reduce inflow to early retirement
Broaden tax-bases
Reforms to increase long-tem competitiveness
–
Increase incentives to work
–
Invest in education and training
–
Improve infrastructure, conditions for R&D and entrepreneurship
–
Increase flexibility in labour and product markets and reduce red tape
–
Improve efficiency of tax systems and public expenditures
Finansdepartementet

13. Sweden: Growth enhancing policy
agenda
• Budget bill 2013: Strengthen Sweden’s
competitiveness
– Investments in infrastructure, research, education and
lower corporate tax rate
• Budget bill 2014: Increase domestic demand
and improve youth employment prospects
– Lower income tax rates, reduced fees for unemployment
insurance, youth labour market reform
Finansdepartementet

14. -2
-8
Finansdepartementet
Ireland
France
Belgium
Portugal
-6
Source: Eurostat
0
-5
-10
-20
-15
Source: Eurostat
Italy
France
Change 2000 – 2011 in per cent
Belgium
10
Portugal
Source: Eurostat
Denmark
Greece
Ireland
Germany
Spain
Portugal
Italy
France
United Kingdom
Austria
Belgium
Netherlands
-4
Austria
0
Germany
-2
Netherlands
10
United Kingdom
20
Finland
30
Finland
2011
Sweden
As per cent of GDP
Sweden
Spanien
Tyskland
2000
Spain
Irland
Storbritannien
Portugal
Nederländerna
Italien
Österrike
Sverige
Grekland
Belgien
Finland
Frankrike
Danmark
50
Netherlands
Implicit tax rate on work
Austria
Italy
United Kingdom
-4
Germany
Greece
Finland
Denmark
4
Sweden
Public expenditures
Tax burden
4
Change 2000 – 2011 as per cent of GDP
60
2
40
0
-6
-8
Source: Eurostat
Implicit tax rate on capital
Change 2000 – 2011 in per cent
2
5
0

15. GDP-growth
Real disposable income
Average GDP-growth 2007–2012, percent
19,1
0,1
-6
1,2
Italy
Spain
0,6
Finland
2,2
Netherlands
Portugal
Denmark
-1,1 -3,6
-15
Greece
Spain
Portugal
Ireland
-4,4 -9,1
-13,6
-20
-25
-2,5
Denmark
-10
Italy
-5
0,5
Ireland
Finland
Greece
Germany
France
Italy
Netherlands
UK
Spain
Austria
Sweden
Belgium
2,4
Austria
0,9
Finansdepartementet
5,1
0
2,5
Source: OECD
5,4
France
3,7 3,6 3,4
0
-4
6,3
5
2
-24,6
8,6
Sweden
4,2
-4,2 -8,3
-1,3
UK
10
4
-2
0,3
Percentage change 2006Q3−2013Q2 (s.a.)
7,0 6,8
5,3 5,2
4,9
1,7
Employed population, aged 15−74
Percentage change 2006Q3−2013Q2 (s.a.)
6
3,1
Source: Eurostat
Active population, aged 15−74
8
3,5
Greece
Italy
Portugal
Denmark
Spain
Ireland
UK
Finland
France
Netherlands
Belgium
Austria
Germany
Sweden
Source: Eurostat
4,7
Netherlands
-3,0
-4
4,9
Portugal
-3
5,5
Austria
-2
6,5
-0,9
UK
-0,1 -0,2
-0,4 -0,5
-1
Ireland
11,5
Germany
0
Denmark
0,4
France
0,5
Belgium
0,5
Belgium
0,8
Finland
1,1
Germany
1,2
1
Sweden
1,4
Greece
2
Percentage change 2007–2012
-15,5
-19,0
Source: OECD

16. Conclusions
• More stable growth prospects in near
term for Europe, but large remaining
challenges
• Functioning of banking systems must be
improved
• Need for structural reforms to
strengthen long-term growth
Finansdepartementet