Taking stock:

where do we stand in the crisis?

Jürgen Stark
Member of the Executive Board
and the Governing Council of the European Central Bank

Slides for the speech delivered at

BMW Stiftung Herbert Quandt,
Washington D.C., 15 April 2010
 Fiscal developments in the euro area, the
United States, the United Kingdom and Japan
Budget balance, general government Gross debt, general government
(1996-2011, percentage of GDP) (1996-2011, percentage of GDP)

5.0 210.0
United States United States
Japan Japan
Euro area
185.0 Euro area
United Kingdom United Kingdom
0.0
160.0

135.0

-5.0
110.0

85.0
-10.0

60.0

-15.0 35.0

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Source: European Commisson's European Economic Forecast of autumn 2009 Source: European Commisson's European Economic Forecast of autumn 2009
General government fiscal development

percentage of GDP Budget balance Gross debt

2008 2011 2008 2011
United States -6.4 -13.2 70.7 105.8
Japan -3.8 -9.1 173.1 206.0
Euro area -2.0 -6.5 69.3 88.2
United Kingdom -5.0 -11.1 52.0 88.2
Source: European Commisson's European Economic Forecast of autumn 2009
Fiscal developments: euro area countries
Budget balance, general government
(percentage of GDP)

10

-5
FI MT LU
IT DE
NL SK BE CY AT
SI
-10 PT
FR
ES
GR
-15
IE
2007 2010
-20

Source: European Commisson's European Economic Forecast of autumn 2009

 0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
A rizo na
C alifo rnia
Rho de Island
F lo rida
Nev ada
New Jersey
M assac husetts
S o uth
C o nnec tic ut
Idaho
TO TA L
Illino is
No rth
C o lo rado
V irginia
T ennessee
New Y o rk
A labam a
D elaw are
W isc o nsin
V erm o nt
G eo rgia
Pennsy lv ania
D istric t o f
U tah
M ary land
O hio
M inneso ta
Indiana
M ississippi
M aine
M ic higan
W ashingto n
New
K entuc ky
Total Gap as Percent of FY2010 General Fund
Total Gap as Percent of FY2009 General Fund

Io w a
New M exic o
Haw aii
A laska
W y o m ing
O rego n
M isso uri
L o uisiana
K ansas
A rkansas
S o uth D ako ta
O klaho m a
and West Virginia. Total Budget Gaps refer to the gap before the budget was adopted plus the additional Mid-Year Gap.

T exas
W est V irginia
Source: Center of Budget and Policy Priorities. Note: Estimates as of December 2009. 2009 estimates are not available for Texas
(as a percentage of the respective General Fund budget)
Fiscal developments: US budget gaps by State
 Euro area government debt scenarios:
assumptions on adjustment paths

•Three scenarios:
• Red: no policy change
(annual change in primary balance ∆pt = 0)

• Orange: limited consolidation effort

(annual change in primary balance ∆pt = 0.5)

• Green: more ambitious consolidation effort

(annual change in primary balance ∆pt = 1)
 Euro area government debt scenarios

180

160

percentage of GDP
140

120

100

80

60

40
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
red scenario orange scenario
green scenario 60 % of GDP

Source: ECB simulations.

Note: debt scenarios do not cover the expected increase in the costs of ageing.
 Public debt scenarios for the Unites
States, the United Kingdom and Japan

United States United Kingdom Japan

300 420
300 400
280 380
280
260 360
260 340
240

percentage of GDP
percentage of GDP
240 320
percentage of GDP

220 300
220 280
200
200 260
180 240
180 220
160
160 200
140 180
140 160
120
120 140
100 120
100 100
80
80 80
60 60
60
40 40
40

2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030

red scenario orange scenario red scenario orange scenario

red scenario orange scenario
green scenario green scenario
green scenario

Source: ECB simulations.

Note: debt scenarios do not cover the expected increase in the costs of ageing.
 Balance sheets of the ECB, Fed and BoE
(percentage of GDP)

FTOs and MLF Other assets Long-term repos

LTROs Repos and other loans Short-term monetary operations
MROs Securities held by special entities
Assets Purchasing Facility
Securities Mortgage-backed securities
20 20 20 Non monetary assets excluding APF
General government debt Federal Agency
Treasury
Net foreign assets
Net foreign assets
18 18 18

16 16 16

14 14 14

12 12 12

10 10 10

8 8 8

6 6 6

4 4 4

2 2 2

0 0 0
2007Q2 2009Q4 2007Q2 2009Q4 2007Q2 2009Q4
ECB Fed BoE
Sources: ECB, Fed, BoE.
Background slides
 Further risks to fiscal sustainability
arising from population ageing
Public pension expenditure in the euro area and the EU, 2007-60
15
Euro area
14.5 EU27

14

13.5

13
% of GDP

12.5

12

11.5

11

10.5

10
2007 2010 2020 2030 2040 2050 2060

Source: European Commission and Economic Policy Committee (2009).

 Assumptions behind public debt scenarios

Euro area Japan United United

Kingdom States
Time horizon Starting point 2010, simulations 2011onwards until 2030
Initial debt ratio (percentage of 84.0 197.6 80.3 94.4
GDP) 1)
Nominal GDP growth 3.4 0.2 4.8 4.6
(percentage per annum) 2)
The interest rate (percentage) 3) 4.3 1.4 4.4 3.8

Initial primary balance -3.7 -6.1 -10.3 -10.1

(percentage of GDP) 4)

1) The initial debt ratio is equal to the value for 2010 published in European Commission’s autumn 2009 forecast.
2) The nominal GDP growth is equal to the average of nominal potential growth over 1995-2014 estimated in the IMF World Economic Outlook.
3) The nominal implicit interest rate on government debt is assumed constant at the value recorded in 2008 (as the values for the period 2009-10 could be
distorted by the financial crisis).
4) The initial primary balance is equal to the value for 2010 published in European Commission’s autumn 2009 forecast.