EUROZONE AND FUTURE SCENARIOS

NO PAIN, NO GAIN....

The Italian-Slovak Chamber of Commerce

Elena KohútikováDeputy Chief Executive OfficerVÚB, a.s.

Bratislava, 23 May, 2012

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Is this a Future of Europe?

� More than 50 percent of investors predict Eurozone to loose its member, as Greece’s election impasse threatens to push the debt crisis to new depths, according to BloombergGlobal Poll

– In fact, a number of poll participants who predict a smaller euro area within a year ballooned in May to 57 percent from 11 percent in January 2011

� 80 % of 1,253 investors, analysts and traders whoare Bloomberg subscribers expect further deepeningof European debt crisis

� 55 percent of participants said backsliding by Europe posed a high risk to the world economy, whilethe number of those who said the same of a hard landing by China or gridlock among U.S. politicians is fewer than a half

Markets are more bearish

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� Macroeconomic consolidation versus economic growth?

� Need of deeper cooperation and integration in EMU is not in contradiction to solvespecific issues of individual countries

� Solidarity – not only EMU countries against the countries receiving help, but also those countries to countries providing the help

� Greece – a unique case?

Challenges for Europe and Eurozone

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Macroeconomic Consolidation versus Economic Growth?

Era of positive mood and narrow spreads within the Eurozon e has definitely gone

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Nemecko Španielsko Portugalsko Írsko

Grécko Taliansko Belgicko Francúzsko

fixing exchange rates

(May 1998)launching the

euro (Jan 1999)

Greece joined

the euro area

(Jan 2001)bankruptcy

of Lehman

revision of greek

debt (Oct 2009)

The Greek PSI talks

(Aug 2011)

Yields of 10-year government bonds since 1990, % p. a.

Source: Bloomberg, VÚB

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Macroeconomic Consolidation versus Economic Growth?

While fourth quarter was in sign of deceleration, f irst quarter was already negative for euro-area economy slipping into soft r ed numbers...

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

USAEA

Odhadforecast

Source: Bloomberg, VÚB

Euro area economy growth is heavily affected by fis cal tightening

GDP growth, historical and forecasted consensus values, % y/y

Key Task – how to consolidate and grow? Do we have s cenarios ready?

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New challenge: Macroeconomic Consolidation versus Econ omic Growth= No! Consolidation AND Growth

Task of the day: not only fiscal consolidation and debt reduction, but moreover simultaneously implementation of growth factors orien ted not just to growth but at thesame time to solve the most urgent issues in individual c ountries:

� High unemployment – especially of young people – is the syndrome of lost generation threatening us? – supporting instruments of young people employment – supporting FDI and education and science

� Export competitiveness , also domestic demand in some countries – return to link the wage development to productivity growth

� Change of the ratio between the employed and unemployed part of population – it is not only an aging issue

� Restructuralisation, privatisation and FDI

Who will finance the GROWTH?� EIB, new EBRD?

� Banks? (Which? Almost all are markedly noted down by crisis), Basel III?

� Joint bonds?

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Need of Deeper Cooperation and Integration in EMU is not in Contradiction to Solve Specific Issues of Individual Coun tries

EU level – deeper Cooperation – higher Integration

� Improvement of economy governance

�EU reinforces financial market supervision

�Europe 2020 – restoring normal lending to economy, completing the Single Market, strengthening innovation

Solution of the specific issues of Eurozone countrie s

� Ireland – is a success story

�Portugal – is on track

� Italy – starts far reaching austerity and reform programme

�Spain – committed to comprehensive adjustment

Greece – a unique case?

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Greece – a Unique Case?

� Greece does not have a liquidity problem, but a SOLVENCY PROBLEM

� Eurozone Member States will continue to support Greece .... as long as Greece continues to implement the agreed conditionality

Two potential Greek scenarios are still realistic:

1. Greece will exit eurozone – either upon an agreement or impulsively – however, thus the problems are not being solved - currency devaluation, potential problems in banking sector and real economy will result into the urgency of hard consolidation

2. Greece stays in eurozone, reforms will be imposed from „TROJKA“ - it requires also solidarity ofGreek citizens with other countries of EMU – especially those who provide assistant , but also those countries that might by adversely affected by leaving Greece from eurozone

Potential EMU and EU scenarios if Greece leaves EMU:

1. Greece will be considered as a UNIQUE CASE

2. Greece infection will be spread onto other countries being closely monitored by the market nowadays

3. The end of the Monetary Union? And what about EU?

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Thank you for your attention!

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