Eurozone Crisis
Europe in World Economy 2015
Vladan Hodulák

•Current position in the IMS
•One of the reasons for the euro creation was to challenge the dominance of the US dollar
•Euro in the world
–24% of world reserves (dollar 61%; 2013)
–33% of all international transactions (dollar 87%; 2013)
–32% of all debts (dollar 45%; 2009)
–27 countries have their currency fixed to Euro (66 to dollar; 2009
–less than 40% eurozone exports invoiced in euros ( around 95% in dollars)
–

•Balance of payments
–Accounting accord of all monetary transactions between a country and the rest of the world
–The sum of all accounts has to be equal 0 by definition
•Composition
–Current account – exports, imports, income of factors of production
–Capital account – usually negligible
–Financial account – change in ownership in assets (investment, loans)
–Change in reserves – reserves of the central bank
•Balancing mechanisms
–Exchange rate adjustment
–Internal prices adjustment
–Various others (debt forgiving, war, emigration)
•International investment position
•Relationship to government deficits and debts
•

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•What is money?
•Neoclassical economics has almost no place for money
–defined by functions
–medium of exchange
–lowers transaction costs
•Common story – evolution of medium of exchange from barter exchange (Menger)
•Money is supposed to be the most readily exchangeable commodity
•Current money developed from commodity money – notes were originally promises to pay gold to the
bearer
•But history has some counterfactual evidence – money matters and is more than medium of exchange

•A way of coordinating intergroup relations (esp. production) – rose out of obligation (means of
payment)
•Money is a social relation (institutionalized)
•First „sort of money“ – unit of account in Sumer
–temple economy
–value assignment
–obligations became quantifiable – first debts
–rationalization of cooperation
•It is an artificial product of human conduct, can be redesigned or „renegotiated“
•Almost anything can be a „money thing“
•
•

•Money creation implies power, therefore money is inherently political
•Money and taxes are closely linked
–money obtains some of its value through taxation
–channeling of resources for a public purpose
–redistribution maintains intergroup stability
•Government does not have to go bankrupt in its own currency – money creation as an emergency tool
during crisis (war, political turmoil)
•Real constraints of government spending
–inflation
–international economic relations
•„Voluntary“ financial constraints of government (budgetary process, CB independence, fixed
exchange rate etc.)
•

Eurozone Crisis
•In 2010 Greece announced problems with financing its debt
•Later affected – Portugal, Ireland, Spain
•Reasons
–Excessive budget deficits
–Inefficient financial regulation
–Intra-European imbalances
•Eurozone response
–Euro plus pact – ex-ante coordination and surveillance
–European Semester – timetable of coordination
–Six Pack – semiautomatic sanctions
–Fiscal compact – strengthened Stability and Growth Pact
–European Stability Mechanism (ESM) – emergency fund
–Banking union – surveillance of financial markets

Development of the EU Current Account to GDP between the Years 1992 -2011 (%)



Current Account to GDP in the Years 1999-2012 (%)



Net International Investment Position (in % of GDP)



Central Bank Balance Sheets within TARGET2 System (Millions of EURO)