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PRESENTATION BY VALERIO DE MOLLI
AT THE FORUM:
OBSERVATORY ON THE NEW EUROZONE
Improving European Integration and Competitiveness
“Sofitel Hotel”, Budapest – June 16, 2010 Reproduced by The European House-Ambrosetti for internal use only.
1
Budapest, June 16, 2010
OBSERVATORY ON THE NEW EUROZONEImproving European Competitiveness and Integration
Valerio De Molli
OBJECTIVES, METHODOLOGICAL APPROACH AND MAIN FINDINGS ON THE PROJECT
© 2010 The European House-Ambrosetti S.p.A. - ALL RIGHTS RESERVED. This document was prepared by The European House-Ambrosetti S.p.A. for the use of the client to whom it is addressed. No part of it may be copied or made available in any way to third parties or used by them without The European House-Ambrosetti S.p.A.’s prior written consent. This document supported a presentation and should not, therefore, be considered without the accompanying oral comments.
© 2010 AmbrosettiObservatory on the New EurozoneAgenda
Overview of the Project
New Europe Countries Comparative Analysis: 2010 Update
Eurozone Enlargement: the current situation for the Czech Republic, Poland and Hungary
Main findings of the “Adoption of the Euro in Hungary” survey
2
2
© 2010 AmbrosettiObservatory on the New EurozoneMission of the “Observatory on Europe”
The Observatory on Europe aims to …
… pragmatically contribute to the success of the European
Union, providing its political and economic leaders, as well as
its citizens, with high quality studies, analyses and proposals in
order to help them build a stronger Europe, from economic,
3
social and political standpoints
© 2010 AmbrosettiObservatory on the New EurozoneProject’s Milestones
Observatory onEurope 2009
Presentation Forum 2011
Observatory onEurope 2009
Presentation ForumBrussels, December, 2010
Observatory onEurope 2010
Presentation ForumBrussels, January, 2011
Observatoryon the New Eurozone
Presentation ForumBudapest, Jun. 16th, 2010
2009
2010
Observatory onEurope 2005
Observatory onEurope 2007
Presentation ForumBrussels, Apr. 17th, 2007
Brussels, March 24th, 2009
Observatory
2011
2008
42005
2006
2007
Europe 2005Presentation Forum
Brussels, Dec. 15th, 2005
Observatoryon New EuropePresentation Forum
Budapest, Dec. 4th, 2008
3
© 2010 AmbrosettiObservatory on the New EurozoneObservatory on Europe 2008/2009 – Objectives
To analyze and measure the level of competitiveness of four countries (Hungary, the Czech Republic, Slovenia and
Observatory on New Europe (2008)
four countries (Hungary, the Czech Republic, Slovenia and Slovakia) belonging to the so called “New Europe”, four years after EU accession
To outline the best evidence available to show how to speed up the integration process between “new entrants” and the core Europe
5
the core Europe
© 2010 AmbrosettiObservatory on the New EurozoneObservatory on Europe 2010 – Objectives
To elaborate the updated Enlargement economic evaluation analysis, previously presented at the “Observatory on New Europe” Forum held in
Observatory on the New Eurozone (2010)
Budapest on December 4th, 2008
To elaborate an ad hoc analysis concerning the Eurozone enlargement to the Czech Republic, Hungary and Poland:
steps to be taken and timing, constraints and opportunitiesrelated to the Euro adoption
6
“lessons learned” from most recent experiences of Euro adoption (Slovakia and Slovenia)
To discuss about the impacts of the crisis and the current financial turmoil on the Eurozone Enlargement process
4
© 2010 AmbrosettiObservatory on the New EurozoneThe Project Methodology – The Advisory Board (1/3)
The European House-Ambrosetti
ADVISORY BOARD andSCIENTIFIC COMMITTEE
Fi l R tFinal ReportAnalysis and
Recommendations
FORUM
FORUM
Scientific Committee
+The European
House-AmbrosettiProject Team
7
FORUM
© 2010 AmbrosettiObservatory on the New EurozoneThe Project Methodology – The Advisory Board (2/3)
Scientific Committee “Observatory on the New Eurozone”
Vladimír Dlouhý International Advisor at Goldman Sachs; Professor of Macroeconomics and Economic Policy, Charles University in Prague; Former Minister of Economy, Czechoslovakia; Former Minister of Industry and Trade, The Czech Republic
Pé M d
8
Péter Medgyessy Former Prime Minister of the Republic of Hungary
5
© 2010 AmbrosettiObservatory on the New Eurozone
Francis Bailly Senior Business Executive and Director European Affairs, GE International
Giovanni Castellaneta Chairman, SACE Al d C ll
The Project – Methodology: The Advisory Board (3/3)
Business Leaders
and Alessandro Castellano Chief Executive Officer, SACE
Bernd Geilen General Manager, Ing Direct Riccardo Illy President, Illy Group
and Licerio Degrassi Chief Finance Officer, Illy Group Roberto Sestini Chairman, SIAD
and Bernardo Sestini Chief Executive Officer, SIAD
Tomas Spurny Chief Executive Officer, CIB Bank
9
and Eduardo Bombieri Deputy Chief Executive Officer, CIB Bank Hisashi Takeuchi Chief Executive Officer, Magyar Suzuki
and László Urbán Deputy Chief Executive, Magyar Suzuki Paolo Ruzzini Chairman and CEO, Slovenske Elektrarne Stefano Venturi Vice President, Public Sector Europe, Cisco Systems Italy
and Diogo Vasconcelos Distinguished Fellow - Internet BusinessSolutions Group, Cisco EMEA
© 2010 AmbrosettiObservatory on the New EurozoneAgenda
Overview of the Project
New Europe Countries Comparative Analysis: 2010 Update
Eurozone Enlargement: the current situation for the Czech Republic, Poland and Hungary
Main findings of the “Adoption of the Euro in Hungary” survey
10
6
© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – New Europe Countries
The analysis focused on 4 dynamic “New Europe Countries” (NECs)selected because of their geographical proximity and characteristics in
terms of population and GDP
Czech Republic (CZ)
Hungary (HU)
New Europe Countries (NECs)
11
Slovakia (SK)
Slovenia (SI)
© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Aims
1. Which is the most competitive NEC at the present time?
2. Which NEC has improved more its competitiveness level since the EU accession?
3. In which areas have NECs benefited the
12
most from the 2004 Enlargement?
7
© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – General Framework
KPIs
Enlargement Evaluation:
GOAL #3
Trend Competitive Evaluation:
GOAL #2
Current Competitive Evaluation:
GOAL #1
Current Analysis Trend Analysis
1 2 3
13
Evaluation:NECs vs EU-15 av.
Evaluation:among NECs
Evaluation:among NECs
In which areas have “New Europe Countries” benefited
the most from the 2004 Enlargement?
Which is the most competitive “New Europe Country” at the
present time?
Which “New Europe Country” has improved more its
competitiveness level since the EU accession?
© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Methodological Approach – Time Horizon
Trend Analysis
May 1st , 2004Accession to the EU
Today
Selected Time Horizon:2002 – 2009 or Latest data available
14
2002 2004 2009 or Latestdata
availableCurrent Analysis
8
© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Methodological Approach – Select KPIs (1/2)
AREA KPI Years Source Best if
1. GDP Growth Rate 2002-2009 Eurostat +
2. GDP per Capita 2002-2008 Eurostat +
3 E l t R t 2002 2008 E t t +
Economic Growth 3. Employment Rate 2002-2008 Eurostat +
4. Labour Productivity 2002-2009 Eurostat +
5. Inflation Rate 2002-2009 Eurostat -
6. Government Debt 2002-2009 Eurostat -
7. Public Balance 2002-2009 Eurostat -
8. Exports and Imports of Goods and Services 2002-2009 Eurostat +
9. External Balance of Goods and Services 2002-2009 Eurostat +External
Openness
Macroecono-mic Stability
Growth
15
10. FDI Stocks 2002-2008 UNCTAD +
11. Time to Start a Business 2004-2009 World Bank -
12. Cost of Start a Business 2004-2009 World Bank -
13. Total Tax Rate 2006-2009 World Bank -
14. Time to Enforce a Contract 2004-2009 World Bank -
Business Environment
Openness
Best if + : the higher the KPI’s value, the higher the “competitiveness” scoreBest if - : the higher the KPI’s value, the lower the “competitiveness” score
© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Methodological Approach – Select KPIs (2/2)
AREA KPI Years Source Best if
15. Research and Development Expenditure 2002-2008 Eurostat +
16. ICT Expenditure 2002-2008 Eurostat +
17 H R i S i & T h l 2002 2008 E t t +Innovation 17. Human Resources in Science & Technology 2002-2008 Eurostat +
18. High-tech Exports 2002-2008 Eurostat +
19. Broadband Penetration Rate 2004-2009 Eurostat +
20. Level of Internet Access – Households 2004-2009 Eurostat +
21. E-government On-line Availability 2004-2009 Eurostat +
22. Energy Intensity of the Economy 2002-2007 Eurostat -
23. Energy Dependency 2002-2007 Eurostat -Energy
Innovationand
Technology
16
24. Electricity Prices for Industrial Consumers 2002-2009 Eurostat -
25. Electricity Generated from Renewable Sources 2002-2010 Eurostat +
gy
Best if + : the higher the KPI’s value, the higher the “competitiveness” scoreBest if - : the higher the KPI’s value, the lower the “competitiveness” score
9
© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Methodological Approach – How Scores Are Calculated (1/2)
Countries’ performance in each KPI is evaluated from a competitiveness standpoint. This means that the first step was defining “pro-competitiveness behaviour” for each KPI. For instance, from a competitiveness standpoint it is better to pay less taxes therefore the lowercompetitiveness standpoint, it is better to pay less taxes, therefore the lower the Total Tax Rate, the higher the “competitiveness” score
For each KPI, the best performer among the NECs received a score of 5 stars (max score) and the worst performer received a score of 1 star (min score)
The remaining NECs’ scores varied between 1 and 5, according to their relative
17
g , gperformance
© 2010 AmbrosettiObservatory on the New EurozoneComparative Analysis – Methodological Approach – How Scores Are Calculated (2/2)
The “scale” drove the scoring process and was calculated as follows:
scale = (max value – min value) / (max score – min score)
Ha ing fi ed the “scale” each State’s sco e as estimated as follo s Having fixed the “scale”, each State’s score was estimated as follows:
= [(country value – min value) / scale] + 1
The Areas’ scores (i.e. each NECs level of competitiveness in that Area) were calculated as average of the KPIs’ scores
X.X
18
The Final score was calculated as average of the Areas’ scores
10
© 2010 AmbrosettiObservatory on the New Eurozone
The following slides are just aThe following slides are just a selection of the complete analysis you can find included in the Observatory on the New Eurozone Full Report*
19
(*) The Observatory on the New Eurozone Full Report is available for the Forum Participants and can also be downloaded at www.ambrosetti.eu
© 2010 AmbrosettiObservatory on the New Eurozone
2009 E 2002 2009 % h
Labour Productivity(GDP at current market prices per person employed)
Comparative Analysis – Economic Growth
KPI
4TRENDCURRENT
EXAMPLE
36.07728.991 26.255
23.459
53.094
36%
40%
64%
128%
Sl i
Hungary
Czech Republic
Slovakia
2009, Euro 2002-2009, % change
5.0
2.2
1.2
1 05 0 2 8 1 9 1 0
20
Slovenia Slovakia CzechRepublic
Hungary EU-27 11%
36%
EU-15
Slovenia
Source: The European House-Ambrosetti re-elaboration of Eurostat data, 2010
1.0
= score
5.0 2.8 1.9 1.0
11
© 2010 AmbrosettiObservatory on the New EurozoneCurrent Competitive Evaluation – Final Ranking
Current Competitive Evaluation(2009 or latest data available)
= comparison5.0MaxScore
1
+0.2
-0.3
-0.1
= comparisonone year later3.7
3.0
2.7 2.6
Score
+0.3
21
Slovenia CzechRepublic
Slovakia Hungary
Source: The European House-Ambrosetti re-elaboration
1.0Min
Score
© 2010 AmbrosettiObservatory on the New Eurozone
4.0
5.0
Current Competitive Evaluation – Hungary (performance in each area)
M i
Economic Growth
4.1Slovenia
Sl i
1
1.0
4.3
2.32.0
2.9
0.0
1.0
2.0
3.0
External
Macroeconomic Stability
Innovation and
Energy 4.2Slovenia
Hungary
3.9
Slovenia4.4
22
3.1
Source: The European House-Ambrosetti re-elaboration
Business Environment
OpennessTechnology
Average score: 2.6/5Slovakia
3.3Slovenia
3.9
= best performer
12
© 2010 AmbrosettiObservatory on the New EurozoneTrend Competitive Evaluation – Final Ranking
Trend Competitive Evaluation(2002 - 2009 or latest data available)
5.0MaxScore
2
3.9
2.7 2.5 2.3
Score
23
Source: The European House-Ambrosetti re-elaboration
Slovakia Slovenia CzechRepublic
Hungary1.0
MinScore
© 2010 AmbrosettiObservatory on the New Eurozone
4 0
5.0
Trend Competitive Evaluation – Hungary (performance in each area)
M i
Economic Growth
2
5.0 Slovakia
1.01.0 2.4
3.73.0
0.0
1.0
2.0
3.0
4.0
External
Macroeconomic Stability
Innovation and
Energy3.5
Slovakia
Hungary
4.1
Slovakia
3.4
24
2.8
Source: The European House-Ambrosetti re-elaboration
Business Environment
OpennessTechnology
Average score: 2.3/5
3.9Slovakia
Slovakia
= best performer
13
© 2010 AmbrosettiObservatory on the New EurozoneEnlargement Evaluation – Overall Picture
Progress made after the accession to the EU: 2004-2009 or latest data available3
Vs Economic Macro Extern Business Innovation and % of GreenVs Economic Macro Extern Business Innovation and % of Green
EU-15 Member States AverageTren
d
EconomicGrowth
Macro.Stab.
Extern. Openn.
BusinessEnvir.
Innovation and Technology Energy % of Green
ArrowsEconomicGrowth
Macro.Stab.
Extern. Openn.
BusinessEnvir.
Innovation and Technology Energy % of Green
Arrows
CZ
HU
SK
64%
68%
76%
25Source: The European House-Ambrosetti re-elaboration
= The Country performed better than the EU-15 average during the selected time horizon
= The Country performed worse than the EU-15 average during the selected time horizon
Green arrowRed arrow
% ofGreen Arrows
% ofGreen Arrows
SI 84%
81%68%62.5%67%75%87.5%
© 2010 AmbrosettiObservatory on the New EurozoneAgenda
Overview of the Project
New Europe Countries Comparative Analysis: 2010 Update
Eurozone Enlargement: the current situation for the Czech Republic, Poland and Hungary
Main findings of the “Adoption of the Euro in Hungary” survey
26
14
© 2010 AmbrosettiObservatory on the New EurozoneEuro Area enlargement – The Eurozone, as of 2010
1999 Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland
2001 Greece
2002 Introduction of euro banknotes and coins
2007 Slovenia
2008 Cyprus, Malta
2009 Slovakia
2011 Estonia
...
27
Eurozone
EU Member States that havenot yet adopted the euro
EU Member States that havechosen to be excluded
2011 Estonia
© 2010 AmbrosettiObservatory on the New Eurozone
The Member States that joined the EU in 2004 and 2007 are part of EMU - which means that they coordinate their economic policymaking with the other EU Member States and that their central banks are part of the European System of Central Banks
However, as they did not join the Euro Area immediately on accession, their official
Euro Area enlargement – Accession Obligations (1/3)
status until they adopt the single currency is “Member States with a derogation”
This status is granted by the Act of Accession and obliges them to become full members of the Euro Area eventually
The new Member States did not join the Euro Area immediately upon accession because they did not meet the convergence criteria. The Treaty of Accession therefore allows them time to undertake the adjustments needed to achieve convergence
28
Participation in the Eurozone is mandatory: the clauses that permitted the United Kingdom and Denmark not to adopt the euro were provided under specific circumstances and were not applicable to the new Member States
15
© 2010 AmbrosettiObservatory on the New Eurozone
The convergence criteria — the Maastricht criteria — are the economic targets and institutional changes that a country must achieve before adopting the single currency and entering the Euro Area
Euro Area enlargement – Accession Obligations (2/3)
29
Source: “One currency for one Europe. The road to the euro”, European Commission
© 2010 AmbrosettiObservatory on the New EurozoneEuro Area enlargement – Accession Obligations (3/3)
According to the Eurobarometer survey, the majority of new Member States’ citizens believe that their nation can choose whether or not to adopt the euro, even if the Accession Treaty obliges all new Member States to join the Euro Area. In fact, more than 6 in 10 respondents (63%) hold this opinion and only 3 in 10 (29%) have th t ithe correct view
29
43 42 41 39 36 34
2421
Can Member States choose whether or not to adopt the euro?% of correct (“NO”) answers
30
Source: “Introduction of the euro in the new Member States, Wave 9”, Flash EB Series #280, 2009
Average HU CZ BG LV LT EE RO PL
16
© 2010 AmbrosettiObservatory on the New Eurozone
CZECH REPUBLIC 2004 2005 2006 2007 2008 2009
MAASTRICHT CRITERIA
G t d fi it % f GDP 3 0 3 6 2 6 0 7 2 7 5 9
Convergence criteria: current situation for the Czech Republic (1/5)
Government deficit as % of GDP -3.0 -3.6 -2.6 -0.7 -2.7 -5.9
Target (%)
Government debt as % of GDP 30.1 29.7 29.4 29.0 30.0 35.4
Target (%)
Inflation rate 2.6 1.6 2.1 3.0 6.3 0.6
Target (%) 2.2 2.5 2.9 2.8 4.1 0.5
Long-term interest rate 4.9 3.5 3.8 4.3 4.6 4.8
Target (%) 6.3 5.4 6.2 6.4 6.2 6.5
-3.0
60.0
31
g ( )
ERM II participation No No No No No No
Sources: The European House-Ambrosetti re-elaboration on Eurostat data, 2010; “European Economic Forecast, autumn 2009”, DG Economic and Financial Affairs
The marked items are those which met the convergence criteria
© 2010 AmbrosettiObservatory on the New EurozoneConvergence criteria: current situation for the Czech Republic (2/5)
Distance from the target (target=100), average 2007-2009
>100 = out of target<100 = in target
= comparisonwith average
100Target
103.3
52.4
133.8
71.7
2004-2006
+1.1
+2 9
+51
+3.6
32
area
Government deficit as % of GDP
Government debt as % of GDP
Inflation rate Long-term interest rate
+2.9
17
© 2010 AmbrosettiObservatory on the New Eurozone
110
Convergence criteria: current situation for the Czech Republic (3/5)
Euro/Czech Koruna exchange rates (Jan. 2004=100), Jan 2004 - May 2010
80
85
90
95
100
105
-21.58
33
70
75
2004
M01
2004
M03
2004
M05
2004
M07
2004
M09
2004
M11
2005
M01
2005
M03
2005
M05
2005
M07
2005
M09
2005
M11
2006
M01
2006
M03
2006
M05
2006
M07
2006
M09
2006
M11
2007
M01
2007
M03
2007
M05
2007
M07
2007
M09
2007
M11
2008
M01
2008
M03
2008
M05
2008
M07
2008
M09
2008
M11
2009
M01
2009
M03
2009
M05
2009
M07
2009
M09
2009
M11
2010
M01
2010
M03
2010
M05
Source: The European House-Ambrosetti re-elaboration on Eurostat data, 2010
© 2010 AmbrosettiObservatory on the New Eurozone
The Czech Republic was one of the best economic performers in Centraland Eastern Europe in recent years. Strong fundamentals have helped the Czech economy to face the global financial crisis, although a large loss of output could not be avoided
Convergence criteria: current situation for the Czech Republic (4/5)
Inflation remained low for most of the considered period, with the exception of 2008. In 2009 there has been a marked fall in inflation to values allowing fulfillment of the price stability criterion
The public finances are worsened considerably in 2009. The general government deficit is set to widen from 2.7% of GDP in 2008 to 5.9% of GDP in 2009, mainly as a result of the economic downturn. The structural deficit should also increase, reflecting anti-crisis measures. The public finance deficit became the main barrier to the fulfillment of the Maastricht convergence criteria
34
to the fulfillment of the Maastricht convergence criteria
The criterion on long-term interest rates is being – and very probably will continue to be – fulfilled without any problems
18
© 2010 AmbrosettiObservatory on the New Eurozone
The increased volatility of the koruna exchange rate owing to the globalfinancial crisis is an adverse factor: fulfilling the exchange rate criterion after the country potentially joins ERM II may be very difficult under these conditions
Convergence criteria: current situation for the Czech Republic (5/5)
The periodic document “Assessment of the Fulfillment of the Maastricht Convergence Criteria and the Degree of Economic Alignment of the Czech Republic with the Euro Area”, jointly prepared by the Ministry of Finance of the Czech Republic and the Czech National Bank and approved by the Government on 21 December 2009, states that it is very improbable under current conditions that the Czech Republic will be able to meet all Maastricht convergence criteria in the medium-
35
term horizon
In fact, the Government agreed with the recommendation of the Ministry of Finance of the Czech Republic and the Czech National Bank not to set a target date for Euro Area entry yet and not to attempt to enter ERM II during 2010
Source: Ministry of Finance of the Czech Republic
© 2010 AmbrosettiObservatory on the New Eurozone
In May 2009, half of the respondents said they would be happy abouta changeover, and four months later that number has dropped to 37% (-13 percentage points)
Citizens’ support for replacing the national currency by the euro
Are you personally happy or not that the euro could replace the Czech koruna?y p y ppy p
36
Source: “Introduction of the euro in the new Member States, Wave 9”, Flash EB Series #280, 2009
DK – don’t know; NA – not answered
19
© 2010 AmbrosettiObservatory on the New Eurozone
POLAND 2004 2005 2006 2007 2008 2009
MAASTRICHT CRITERIA
Government deficit as % of GDP 5 7 4 1 3 6 1 9 3 7 7 1
Convergence criteria: current situation for Poland (1/4)
Government deficit as % of GDP -5.7 -4.1 -3.6 -1.9 -3.7 -7.1
Target
Government debt as % of GDP 45.7 47.1 47.7 45.0 47.2 51.0
Target (%)
Inflation rate 3.6 2.2 1.3 2.6 4.2 4.0
Target (%) 2.2 2.5 2.9 2.8 4.1 0.5
Long-term interest rate 6.9 5.2 5.2 5.5 6.1 6.1
Target (%) 6.3 5.4 6.2 6.4 6.2 6.5
-3.0%
60.0
37
g ( )
ERM II participation No No No No No No
Sources: The European House-Ambrosetti re-elaboration on Eurostat data, 2010; “European Economic Forecast, autumn 2009”, DG Economic and Financial Affairs
The marked items are those which met the convergence criteria
© 2010 AmbrosettiObservatory on the New EurozoneConvergence criteria: current situation for Poland (2/4)
Distance from the target (target=100), average 2007-2009
= comparisonwith average
>100 = out of target<100 = in target
100Target
141.1
79.6
145.9
92.7
2004-2006
-7.8
+1.5
+53
-3.9
38
garea
Government deficit as % of GDP
Government debt as % of GDP
Inflation rate Long-term interest rate
20
© 2010 AmbrosettiObservatory on the New Eurozone
120
Convergence criteria: current situation for the Poland (3/4)
Euro/Polish Zloty exchange rates (Jan. 2004=100), Jan 2004 – May 2010
80
90
100
110
-13.92
39
60
70
2004
M01
2004
M03
2004
M05
2004
M07
2004
M09
2004
M11
2005
M01
2005
M03
2005
M05
2005
M07
2005
M09
2005
M11
2006
M01
2006
M03
2006
M05
2006
M07
2006
M09
2006
M11
2007
M01
2007
M03
2007
M05
2007
M07
2007
M09
2007
M11
2008
M01
2008
M03
2008
M05
2008
M07
2008
M09
2008
M11
2009
M01
2009
M03
2009
M05
2009
M07
2009
M09
2009
M11
2010
M01
2010
M03
2010
M05
Source: The European House-Ambrosetti re-elaboration on Eurostat data, 2010
© 2010 AmbrosettiObservatory on the New EurozoneConvergence criteria: current situation for Poland (4/4)
Poland stands out as the only EU economy to avert recession in 2009, growing 1.7%. A combination of minimal macroeconomic imbalances, limited export dependence, a flexible exchange rate and timely fiscal and monetary stimulus helps explain the country’s outperformance
The Government deficit had been reduced to below 2% of GDP in 2007, but grew substantially in 2009. As a consequence of high deficits, gross debt increased from slightly above 47% of GDP in 2008 to 51% in 2009
According to the Euro Convergence Plan sent to the European Commission on February 2010, Poland plans to fulfill the EC requirement of lowering the budget deficit to under 3% of GDP in 2012 (2.9%) or, in the worse case scenario, in 2013.
40
deficit to under 3% of GDP in 2012 (2.9%) or, in the worse case scenario, in 2013. Government officials have recently said 2015 is a realistic date for Euro adoption, but the plan mentions no date for Euro Area entering
Sources: Roubini Global Economics; “The convergence programme, update 2009”, Republic of Poland, Feb. 2010
21
© 2010 AmbrosettiObservatory on the New EurozoneCitizens’ support for replacing the national currency by the euro
Are you personally happy or not that the euro could replace the zloty?
In May 2009, more than half of the respondents said they would be happyabout a changeover (52%), and four months later that number has droppedto 45% (-7 percentage points)
y p y ppy p y
41
Source: “Introduction of the euro in the new Member States, Wave 9”, Flash EB Series #280, 2009
DK – don’t know; NA – not answered
© 2010 AmbrosettiObservatory on the New Eurozone
HUNGARY 2004 2005 2006 2007 2008 2009
MAASTRICHT CRITERIA
G t d fi it % f GDP 6 4 7 9 9 3 5 0 3 8 4 0
Convergence criteria: current situation for Hungary (1/5)
Government deficit as % of GDP -6.4 -7.9 -9.3 -5.0 -3.8 -4.0
Target (%)
Government debt as % of GDP 59.1 61.8 65.6 65.9 72.9 78.3
Target (%)
Inflation rate 6.8 3.5 4.0 7.9 6.0 4.0
Target (%) 2.2 2.5 2.9 2.8 4.1 0.5
Long-term interest rate 8.2 6.6 7.1 6.7 8.2 9.1
Target (%) 6.3 5.4 6.2 6.4 6.2 6.5
-3.0
60.0
42
g ( )
ERM II participation No No No No No No
Sources: The European House-Ambrosetti re-elaboration on Eurostat data, 2010; “European Economic Forecast, autumn 2009”, DG Economic and Financial Affairs
The marked items are those which met the convergence criteria
22
© 2010 AmbrosettiObservatory on the New EurozoneConvergence criteria: current situation for Hungary (2/5)
Distance from the target (target=100), average 2007-2009
241.9
120 +54
= comparisonwith average
100Target
142.2
120.6 125.7
-120
+17
+54
+3.3
2004-2006
43
Targetarea
Government deficit as % of GDP
Government debt as % of GDP
Inflation rate Long-term interest rate
>100 = out of target<100 = in target
© 2010 AmbrosettiObservatory on the New Eurozone
120
Convergence criteria: current situation for Hungary (3/5)
Euro/Hungarian Forint exchange rates (Jan. 2004=100), Jan 2004 - May 2010
80859095
100105110115
+4.71
44
707580
2004
M01
2004
M03
2004
M05
2004
M07
2004
M09
2004
M11
2005
M01
2005
M03
2005
M05
2005
M07
2005
M09
2005
M11
2006
M01
2006
M03
2006
M05
2006
M07
2006
M09
2006
M11
2007
M01
2007
M03
2007
M05
2007
M07
2007
M09
2007
M11
2008
M01
2008
M03
2008
M05
2008
M07
2008
M09
2008
M11
2009
M01
2009
M03
2009
M05
2009
M07
2009
M09
2009
M11
2010
M01
2010
M03
2010
M05
Source: The European House-Ambrosetti re-elaboration on Eurostat data, 2010
23
© 2010 AmbrosettiObservatory on the New Eurozone
The global financial crisis had a severe effect on Hungary, that wasthe first European Union country to obtain an IMF-led bailout in 2008
In recent years Hungary has seen its debt burden expand and its long-term interest rate exceed the Euro Zone average
Convergence criteria: current situation for Hungary (4/5)
term interest rate exceed the Euro Zone average
While declining in recent years, the inflation rate is still very high if compared to the convergence target
However, as a result of the fiscal consolidation program started in the second half of 2006, the general government deficit dropped from 9.3% in 2006 to almost half that level, 5%, in 2007; in 2008 balance improvement of more than 1 percentage point was achieved. In 2009, despite the
45
unfavorable economic environment, the deficit did not increase significantly from the level reached in 2008 (3.8%)
The general government debt as a ratio of GDP is instead increased in 2009
Source: “Updated convergence programme of Hungary, 2009-2012”; government of the Republic of Hungary, Jan. 2010
© 2010 AmbrosettiObservatory on the New Eurozone
Following the abolition of the fluctuation band in February 2008*, the HUFexchange rate first strengthened, then weakened considerably. Thus the Forint exchange rate achieved both the strongest and weakest levels of the past decade in less than one year between mid-2008 and early 2009. As a result of the
li ti f th i t ti l fi i l k t ll th t k b
Convergence criteria: current situation for Hungary (5/5)
normalization of the international financial markets as well as the measures taken by Hungarian economic policy the Forint became stable again
The elimination of the fixed exchange rate trading band has pushed the participation in the ERM II (and consequently the introduction of the Euro) into the future
However the Government considers the adoption of the Euro as a priority and the fiscal path of the convergence program sets the target of reducing the
46
the fiscal path of the convergence program sets the target of reducing the general government deficit below 3% by 2011. Nevertheless, no target date for the Euro adoption has been set yet
Source: “Updated convergence programme of Hungary, 2009-2012”; government of the Republic of Hungary, Jan. 2010; “The Euro introduction and creditworthiness”, R&I, Sept. 2008
(*) Without participating in ERM II, Hungary independently set a fixed exchange rate against the Euro and maintained a trading band permitting fluctuations 15% above or below the fixed rate
24
© 2010 AmbrosettiObservatory on the New EurozoneCitizens’ support for replacing the national currency by the euro
More than half of the respondents would welcome the replacement of theirnational currency by the euro (54%), while about 4 out of 10 would not (38%)
Are you personally happy or not that the euro could replace the Hungarian forint?y p y ppy p g
47
Source: “Introduction of the euro in the new Member States, Wave 9”, Flash EB Series #280, 2009
DK – don’t know; NA – not answered
© 2010 AmbrosettiObservatory on the New EurozoneAgenda
Overview of the Project
New Europe Countries Comparative Analysis: 2010 Update
Eurozone Enlargement: the current situation for the Czech Republic, Poland and Hungary
Main findings of the “Adoption of the Euro in Hungary” survey
48
25
© 2010 AmbrosettiObservatory on the New Eurozone
Do you think the introduction of the Euro would have positive or negative consequences for Hungary?
Main findings of the “Adoption of the Euro in Hungary” survey
5.291 6
2009 4.451
(very negative) (very positive)
Which consequences would the introduction of the Euro have for Hungarian companies in the medium to long term?
49
5.291 6
2009 4.361
(very negative) (very positive)
© 2010 AmbrosettiObservatory on the New Eurozone
In which year do you think the Euro will be introducedin Hungary?
Main findings of the “Adoption of the Euro in Hungary” survey
54,5%
36,4%
50
9,1%
2012-2013 2014-2015 2016 or later
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