L’Allemagne et la France face à la crise: Aspects économiques · Conseil d‘AnalyseEconomique franco-allemand (CEPII, Paris, 12 Janvier 2009) „Crise et restructuration de la

Conseil d‘Analyse Economique franco-allemand (CEPII, Paris, 12 Janvier 2009)„Crise et restructuration de la finance mondiale : points de vue franco-allemands“

L’Allemagne et la France face à la crise: Aspects économiques

Dr. Stefan KoothsAbteilung Konjunktur (Département Analyse macroéconomique et Prévisions)

CAEFACrise financière:

Aspects économiques

Outline

Damage done and repair work (so far)

Financial industry as producing unit

- Financial losses and domestic income

- Banking sector’s business model after the crisis

Banking sector as financial intermediary

- Lending capacity

Money multiplier

Equity ratios

- Risk premiums and credit cost

- Interbank market turbulence

Coping with the crisis and fighting recession



Outline






- Lending capacity

Money multiplier

Equity ratios






Global write-offs and losses: 732 bn US-DollarSource: Bloomberg; period from beginning of 2007 to end-2008

4

France4%

Germany10%

other Eurozone4%

other EU10%

RoW72%



Capital raised world-wide: 789 bn US-DollarSource: Bloomberg; period from mid-2007 to end-2008

5

France5% Germany

7%

other Eurozone7%

other EU21%

RoW60%



Write-offs and capital raised in France, GermanyBn Euro; Source: Bloomberg

60

10

20

30

40

50

60

France Germany

Writedown & Loss Capital Raised

1 Percent of GDP

2 Percent of GDP



Outline






- Lending capacity

Money multiplier

Equity ratios






Impact on income and value-added

Are financial losses lost in the National Accounts?

- Theoretically plausible (income as consumption possibility) as foreign financial assets are involved from the European perspective

- Conceptually, revaluations of financial assets are out of the production-based income-creation system of National Accounts (“value added = production of financial services” not affected)

Write-offs within the financial sector do not directly matter for GDP or GNI (revaluations are recorded in the financial accounts)

But: Second-round effects (reduced interest payments on financial assets) do matter for GNI in upcoming years

Expected production-side effect less pronounced in France and Germany than in the Anglo-Saxon economies8



Financial industry’s share in total value added

9 0

2

4

6

8

10

12

14

2000 2001 2002 2003 2004 2005 2006

France Germany Switzerland UK USA



Outline






- Lending capacity

Money multiplier

Equity ratios






MFI capital base and balance sheet ratiosBill. Euro (left scale), percentage points (right scale)

11

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

0

50

100

150

200

250

300

350

400

450

Capital and reserves (FRA) Capital and reserves (GER)

Equity ratio (FRA) Equity ratio (GER)

Domestic lending to equity ratio (FRA) Domestic lending to equity ratio (GER)



Monetary base and money multiplierBn Euro (left scale), money multiplier (right scale)

12

0

2

4

6

8

10

12

14

0

100

200

300

400

500

600

700

800

900

1000

Monetary Base Money Multiplier



Lending to non-financial corporationsCredit volume in bn Euro (left scale), interest rates in percent (right scale)

13

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

0

100

200

300

400

500

600

700

800

900

1000Lending (FRA) Lending (GER)

Interest Rate (FRA) Interest Rate (GER)

ECB (Main Financing) EURIBOR (3 Months)

Average annual growth: + 6 % (FRA) 1 % (GER)

+ 13 % (FRA)+ 8 % (GER)



Risk (and liquidity) premiumsYield spreads of German securities vis-à-vis German federal bonds

14

-0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

Mortgage bonds Bank debt securities Corporate bonds



Lending to consumersCredit volume in bn Euro (left scale), interest rates in percent (right scale)

15

0,00

2,00

4,00

6,00

8,00

10,00

12,00

0

100

200

300

400

500


Interest Rate (FRA) Interest Rate (GER)




Lending for house purchaseCredit volume in bn Euro (left scale), interest rates in percent (right scale)

16

0

1

2

3

4

5

6

7

0

200

400

600

800

1000


Interest rate (FRA) Interest rate (GER)




Interbank lending (Eurozone)Credit volume in bn Euro

17

0

500

1000

1500

2000

2500

Over 2 years Over 1 and up to 2 years Up to 1 year



EURIBOR-EUREPO spread (Eurozone)in basis points, 3-months maturity

18

0

20

40

60

80

100

120

140

160

180

200



Banking system’s liquidity position (Eurozone)Bn Euro

19

-100

-50

0

50

100

150

200

250

300

350

400

450

Deposit facility Current account Excess reserves



Outline






- Lending capacity

Money multiplier

Equity ratios






General response to the financial crisis

The world won’t be the same as the one before the crisis:

“… the one thing we can be almost certain of is when the next crisis comes, it won’t involve AAA-rated subprime mortgage CDOs” (A. K. Kashyap et al., 2008)

Need for forward-looking regulation

21



Self-healing/-stabilizing market mechanisms

Crisis is revealing/clearing unsustainable structures

Fighting overshooting, not market correction per se

Resurrection of risk-awareness

Pre-crisis levels not a reliable benchmark

Lowered “reservation” return on capital

Reduction of opportunity cost of real investment projects

Final return on financial assets not detached from real investment

Global credit crunch less likely

22



France and Germany in recent years

Quite different structures …

… but equally successful(to our mutual astonishment)

Some diverging trends might explain the alternative approaches to anti-recession programs in the recent past (see following 3 slides)

23



Foreign tradeExports (lines, left scale) and trade surplus (bars, right scale) as percent of GDP

24

-8

-6

-4

-2

0

2

4

6

8

20

25

30

35

40

45

50

1991 1995 1999 2003 2007

France Germany



Importance of the public sectorPublic spending ratio in percent

25

42

44

46

48

50

52

54

56

58

1991 1995 1999 2003 2007

France Germany



Fiscal deficitsIn percent of GDP

26-7

-6

-5

-4

-3

-2

-1

0

1

2

1991 1995 1999 2003 2007

France Germany

(former) Maastricht limit

balanced budget



Economic Outlook: Real GDP growthSeasonally adjusted annualized quarter-on-quarter growth in percent; Source: Eurostat, Global Insight, DIW Berlin

27

-3

-2

-1

0

1

2

3

4

5

6

7

I2005

II III IV I2006

II III IV I2007

II III IV I2008

II III IV I2009

II III IV I2010

II III IV

France Germany



Business cycle stabilization 1

Impact on real economy not as clear as it seems

- Wealth effects from financial losses cannot be global(US should benefit, obviously they don’t)

- Extinction of asset illusions: decent policy response?

Let automatic stabilizers work(accept “endogenous” fiscal deficits)

Massive exogenous relief due to lower energy prices(e.g. German annual energy import bill lowered by 35 bn Euro)

Germany: facing an “imported” recession

- Export orientation with strong focus on M&E

- Domestic stimuli come with major production shift effects

28



Impact on value added: Consumption vs. exportsGrowth contribution by sector in percent

29

-0,1 -0,05 0 0,05 0,1 0,15 0,2

Agriculture, mining

Food, textiles, wood, printing

Chemicals

Metal-working

Mechanical engineering

Electrical engineering, furniture

Vehicles

Energy, water supply

Construction

Trade, repair work, restaurants

Transportation

Financial services

Housing, leasing

Software, R&D

Enterprise services

Public administration

Education, health care

Other services

Domestic production

Value added



Impact on value added: Construction vs. exportsGrowth contribution by sector in percent

30

-0,1 -0,05 0 0,05 0,1 0,15 0,2

Agriculture, mining

Food, textiles, wood, printing

Chemicals

Metal -working

Mechanical engineering

Electrical engineering, furniture

Vehicles

Energy, water supply

Construction

Trade, repair work, restaurants

Transportation

Financial services

Housing, leasing

Software, R&D

Enterprise services

Public administration

Education, health care

Other services

Domestic production

Value added



Business cycle stabilization 2

Making employment less volatile than production

- Strengthening enterprises to keep their permanent workforces

- Cutting social security contributions for part-time workers

- Taking general, not sector-specific actions

Fiscal deficits do not allow for trial and error

- Few shots only

- Market confidence in government bonds is not god-given(Country = sum of enterprises and private households)

Case for coordinated European programs

- Average national GDP import share of EU member states: 40 %

- EU-wide GDP import share: 20 %

31



Coherent policy approach: Preventing parallel/competing public actions

Banking sector: Quantitative monetary easing vs. governmental rescue programs

Focusing public interventions on core fields: financial system stabilization vs. commercial rescue programs

Parallel incentives: saving (strengthening private pension schemes) vs. consumption

Leaving room for corrective positive effects of the crisis: Macro stabilization (“total demand”) vs. industry-specific subsidies

Flash in the pan effects of intra-recession demand shifts (e.g. car scrapping discounts) are costly but ineffective

32

Documents

L’Allemagne et la France face à la crise: Aspects économiques · Conseil d‘AnalyseEconomique franco-allemand (CEPII, Paris, 12 Janvier 2009) „Crise et restructuration de la