Deep analysis of European debt crisis

In the financial crisis, government leverage increased the debt burden.

The financial crisis has led governments to introduce easing policies to stimulate economic growth. Greece with high welfare and low surplus cannot support excessive debt consumption through public surplus. The global financial crisis has prompted private enterprises to deleverage and the government to increase leverage. The Greek government's finances were originally in a weak balance. Due to the influence of international macro-economy, the profitability of its national cluster industries has deteriorated, and the cash flow of public finance has dried up in a vicious circle, making the debt burden unbearable.

Rating agencies are no longer bound by western countries and adjust their ratings correctly.

The three major rating agencies in the world continuously downgraded the sovereign ratings of the above four countries. 20 1 1 At the end of July, Standard & Poor's downgraded Greece's sovereign rating from A- at the end of 2009 to CC (junk grade), and Italy's rating outlook was also adjusted to negative at the end of May. Subsequently, in September and early June, 10, Standard & Poor's and Moody's downgraded Italy's sovereign debt rating again. Portugal and Spain also face the risk of frequent downgrades of their sovereign ratings. The downgrading of the sovereign rating makes the interest of the borrowed funds of the above four countries quite high, which can also be the direct cause of the deepening crisis. Unbalanced industrial structure: the real economy is hollow and the economic development is fragile.

The Greek economy, with tourism and shipping as its pillar industries, can hardly resist the impact of the crisis. Among the EU countries, Greece's economic development level is relatively low, and its resource allocation is extremely unreasonable, with tourism and shipping as its main pillar industries. On the one hand, in order to vigorously develop pillar industries and stimulate rapid economic development, Greece has increased its investment in tourism and related real estate industries, and the investment scale has exceeded its own affordability, resulting in an increase in debt. In 20 10, the service industry accounted for 52.57% of GDP, of which tourism accounted for about 20%, while industry only accounted for 14.62% and agriculture accounted for 3.27% of GDP. Together with the deficit of $965,438+billion increased by hosting the Olympic Games in 2004, by 20 10, the total debt of the Greek government will reach 328.6 billion euros, accounting for 142.8% of the GDP. On the other hand, judging from the Baltic Dry Freight Index (BDI), which reflects the prosperity of the shipping industry, due to the financial crisis, the shipping industry has entered a cyclical trough since the end of 2008, and the prosperity has been declining. The decline of shipping industry has a great influence on shipbuilding industry. It can be seen that the pillar industry in Greece is a typical external demand-driven industry. These industries rely too much on external demand and are extremely vulnerable to the impact of the financial crisis.

Italy, driven by export processing, manufacturing and real estate, is unable to cope with the crisis. The biggest feature of Italy's economic structure is small and medium-sized enterprises mainly engaged in export processing (creating 70% of GDP). In 20 10, Italy became the seventh largest exporter in the world (with a total export volume of 4 13 1 billion euros, accounting for 3.25% of the world's total export volume), and the export-driven economy was easily affected by the external environment. The outbreak of the financial crisis has had a great impact on Italy's export manufacturing and tourism. In 2009, its total export volume dropped sharply, and then rebounded, but the rebound mainly depends on the economic recovery process of various countries. With the globalization of the world economy and the intensification of competition, Italy's original competitive advantage has gradually disappeared. In the past 10 years, Italy's economic growth was slow, lower than the average level of the European Union.

Spanish and Irish economies, driven by real estate and construction investment, are fatally flawed. Construction, automobile manufacturing and tourism service are the three pillar industries in Spain. Due to the long-term low interest rate of the single currency system in the euro zone, the real estate industry and construction industry have become the main driving force for Spain's economic growth. From 1999 to 2007, Spanish real estate prices doubled, and 60% of new housing construction in Europe took place in Spain during the same period. The development of real estate has depressed the unemployment rate in Spain. In 2007, the unemployment rate in Spain dropped from double digits to 8.3%. However, under the global financial crisis, the bursting of the real estate bubble caused the unemployment rate in Spain to return to more than 20%, and only half of the young people under the age of 25 had jobs. In addition, the high unemployment rate in Spain also has institutional factors, and the employment policy does not encourage the recruitment of new people. The decrease of overseas tourists has dealt a great blow to Spain's other pillar industry-tourism. Ireland has always been called the "star" of the euro zone, because its economic growth rate has been significantly higher than the average level of the euro zone, and its per capita GDP is more than 20% higher than that of Italy, Greece and Spain, and about twice that of Portugal. However, there was also a liquidity crisis at the end of 20 10, which was rescued by the European Union and IMF. The main reason is that Ireland's economy is mainly driven by real estate investment. In 2005, Ireland's real estate bubble began to appear, and it was getting bigger and bigger with the help of the market. In 2008, house prices in Ireland surpassed those in all OECD countries. Under the impact of the subprime mortgage crisis, Irish real estate prices have fallen sharply and bank assets have shrunk on a large scale. After the bursting of the real estate bubble, the over-developed financial industry was hit hard, and Ireland's fast-growing economy was hit hard and fell into a downturn.

The industrial base is weak, and the economic base that Portugal mainly relies on the service industry to promote economic development is relatively fragile. The most striking feature of Portugal in the past decade is the continuous growth of service industry, which is similar to other euro zone countries. In 20 10, the added value of agriculture, forestry, animal husbandry and fishery in Portugal was only 2.38%, while that of industry was 23.5%, while that of service industry was 74. 12% (due to the influence of Atlantic Ocean, mild Mediterranean weather and long coastline, Portugal began to transform its economic structure (from traditional manufacturing industry to high-tech industry). The outbreak of the financial crisis in the United States led to soaring financing costs, which impacted Portuguese enterprises and affected the entire national economy.

Generally speaking, PIIGS five countries are relatively backward countries in the euro zone, and their economies are more dependent on labor-intensive manufacturing exports and tourism. With the deepening of global trade integration, the labor cost advantage of emerging markets attracts the global manufacturing industry to gradually shift to emerging markets, and the labor advantage of southern European countries no longer exists. However, these countries cannot adjust their industrial structure in time, which makes their economies extremely vulnerable under the impact of the crisis.

Demographic imbalance: aging gradually

Population aging is the development trend of the proportion of the elderly population in the total population in the social population structure. With the acceleration of industrialization and urbanization, the cost of living is getting higher and higher, the fertility rate is decreasing, and the proportion of the elderly population in the total population is increasing. Japan is the developed country with the fastest aging process, and the proportion of Japanese labor force to the total population has turned to an inflection point since the early 1990s, followed by the continuous economic downturn and rising government debt. We judge that since the end of the 20th century, the population structure of most European countries has also begun to age rapidly, mainly in three aspects: the long-term low birth rate and fertility rate, the prolonged life expectancy, and the large-scale aging of baby boomers.

First of all, judging from the birth rate (number of babies born per 1 000 population) and fertility rate (average number of children born per woman) in major countries, the infant birth rate and fertility rate in EU countries have been lower than that in most regions in recent years, which is the fastest declining region after Japan.

Secondly, from 1996 to 20 10, the average life expectancy at birth in EU countries increased from 76. 1 year to 79.4 years. The Federal Statistical Office predicts that by 2050, the average life expectancy at birth in EU countries will reach 83.3 years. Finally, since the baby boom has begun to approach the retirement age after World War II, the birth rate has gradually decreased, and the age structure of the population in the euro zone has gradually changed from a positive pyramid to an inverted pyramid. The peak population ratio has moved from 25-29 years old in 1990 to 40-44 years old in 2007, and this trend is still continuing, and the problem of aging will further deteriorate.

Rigid social welfare system

Within the EU, there are problems between the sacred Germanic Roman Empire (Western Europe) and the Byzantine Empire (Eastern Europe) (both belong to Greek and Roman Christian culture, but different political systems lead to different economic development paths), as well as problems between southern Europe and northern Europe. For the euro zone, the main contradiction lies in the issue of North and South Europe. Catholicism has become a little flexible since living with the people 1000 years, while Protestantism is a strict Sect loyal to the Bible, so northern Europeans who believe in Protestantism are more rigorous and orderly than southern Europeans. Coupled with geographical and climatic factors, binding people of these two cultures under the same monetary system will inevitably bring the following patterns in North and South Europe: northern Europe manufacturing, southern Europe consumption; Nordic savings, southern European lending; Nordic exports, southern Europe imports; Nordic current account surplus, southern European deficit; Northern Europeans pursue wealth, while southern Europeans pursue enjoyment.

Table: Differences between savings and consumption in some EU countries Per capita savings (euro) imports (million euros) Per capita consumption (euro) exports (million euros) Current account surplus (million euros) Denmark 2400 2030018540106158.910. 8+0 Finland180017500 72643 70298 2345 Sweden 420017500173287.3152336.8 20950.5 Iceland-4400. 8+0 4267.3 952.8 Norway12100 26300130787.6 8927 952.8 Ireland 4001617673127900. 62.8 -27434.4 Portugal-1400/0900 53462.3 65828-12365.7 France100016700 9150. Germany 2400/KOOC-0/6500/KOOC-0//KOOC-0/59800/KOOC-0/02450/KOOC-0/35450 Source: Eurostat.

The maintenance of consumption pattern in southern Europe must be supported by high security and welfare (China's lagging consumption level is an example). In recent years, the proportion of social welfare in GDP in EU countries tends to converge (Figure 8), and many southern European countries have gradually increased from less than 20% to more than 20%, among which Greece and Ireland are more prominent. In 20 10, the proportion of social welfare expenditure to GDP in Greece was 20.6%, and the proportion of social welfare to total government expenditure was as high as 4 1.6%. There will be no problem when the economy is developing well, but there will be problems when the domestic economic growth is stagnant under external shocks. From 2008 to 20 10, the GDP of Ireland and Greece both experienced negative growth, while that of Spain also experienced negative growth in the last two years. Social welfare expenditure in these countries has not decreased, but has led to a sharp increase in fiscal deficits. In 20 10, Greece's fiscal deficit reached 10.4% of GDP, while Ireland's reached 32.4%.

The differences between France and Germany on the rescue issue have brought the crisis to a deadlock.

France firmly supports the rescue, and Germany's swing on the rescue issue has left the European debt crisis in a stalemate for a long time. Whether to help countries in crisis depends mainly on the attitudes of Germany and France. France firmly supports the rescue of crisis countries, because French banks hold a considerable amount of euro zone bonds, and if these countries default, France will suffer very heavy losses (as can be seen from the downgrade of two major French banks by the three major rating agencies). Germany is the largest economy in the euro zone, and its strong economic development largely benefits from strict cost control. 12 years, when the euro became a unified currency, domestic wages in Germany rose slowly (about 2% per year), which led to sluggish domestic consumption, but the deficit was well controlled. After the five European countries joined the euro zone, in order to shorten the gap with other countries in the euro zone, wages have been rising, with an average annual increase of more than 10%. The existence of labor advantage makes the per capita GDP level of southern European countries keep rising, and the gap with France and Germany keeps narrowing. But with the increase of wages, the competitiveness is also weakening. In the later period, countries can only rely on tourism and real estate projects to boost their economies. These sources of economic growth are extremely fragile and vulnerable to external shocks. In recent years, Germany has long endured the pain of welfare cuts and wage stagnation, but it is obvious that the German people are unwilling to let them save those countries that enjoy high welfare and high wages. In order to gain more public support, the German government must consider the voice of the people when making decisions. However, if it is not rescued, it will face the liquidity crisis of the domestic banking industry and even lead to a large number of bank failures, which is very important to the domestic economy. No one wants to see this. Therefore, Germany is facing a difficult choice, and how to interpret the European debt crisis depends on Germany's attitude to a certain extent. The first view holds that the real reason for the "implosion" of the euro zone is the financial crisis and the expansion of competitiveness differences among different countries under the single currency.

Standard & Poor's1October 20 12 13 announced the downgrade of France's credit rating. The most lethal thing in the statement is not the demotion decision itself, but its explanation of the reasons for demotion. Standard & Poor's believes that Europe has a one-sided understanding of the causes of the debt crisis, so it has gone astray in its thinking. Solving the debt crisis through fiscal austerity is a "self-destructive" method. From this perspective, the decision to downgrade S&P is not only aimed at individual countries, but also a vote of political no confidence in the euro zone's crisis response efforts.

Standard & Poor's believes that the root cause of the European debt crisis is not only financial problems, but the inevitable result of the widening competitiveness gap between the core countries and marginal countries in the euro zone. In other words, the European debt crisis is not just because southern European countries spend too much money, but earn too little; It is not only a problem of unsustainable finance, but also a problem of declining competitiveness and unsustainable economic development.

S&P is not the only one who holds this view. Since the outbreak of the European debt crisis, there are two different ideas on how to solve the crisis: one thinks that the debt crisis is caused by poor fiscal discipline in individual countries, and the solution is to strengthen fiscal discipline by reducing deficits and concluding fiscal contracts; One thinks that the financial crisis is a symptom, so while reducing the long-term deficit ratio, we should pay more attention to the short-term economic stimulus and reform plan.

What is worrying is that if investors begin to agree more and more with the reasons for S&P's downgrade, it means that Europe will face a greater blow to confidence.

The second view: the euro zone system is flawed, and countries cannot effectively make up the deficit.

First, the monetary system and the financial system cannot be unified, and the cost of coordination is too high. According to the principle of effective market distribution, monetary policy serves external goals, mainly to maintain low inflation and internal currency stability, while fiscal policy serves internal goals, mainly focusing on promoting economic growth and solving unemployment problems, thus achieving internal and external balance. The euro zone has always been the most successful case of regional monetary cooperation in the world. However, the outbreak of the subprime mortgage crisis in the United States in 2008 highlighted the long-hidden problems in the euro zone. When the European Central Bank formulates and implements monetary policy, it needs to balance the interests of all member countries, which leads to the slower adjustment of interest rate policy than other countries, and the adjustment is not in place. With the lag of unified monetary policy to deal with the crisis, governments can only adjust their economies through expansionary fiscal policies in order to get out of the crisis as soon as possible. Many members of the euro zone have violated the standard of 60% of GDP in the Stability and Growth Pact. However, there are no real punishment measures, thus forming a negative incentive mechanism, strengthening the budget deficit impulse of member States and increasing moral hazard. The specific transmission paths are: the sudden financial crisis in the United States and the disunity of monetary and financial systems have led to the lag of monetary policy actions; Countries stimulate their economies through expansionary fiscal policies; Sovereign debt surged; Fiscal revenue cannot cover fiscal expenditure; The crisis broke out.

Second, the labor force in EU countries cannot flow freely, and the different corporate tax rates in different countries lead to capital inflows, which leads to economic bubbles. At first, Mundell's theory of optimal currency area was based on the complete free flow of production factors, which replaced the floating exchange rate. The euro system only loosens the control over the movement of people within the system, but due to the existence of language, culture, living habits, social security and other factors, the labor force within the EU cannot flow completely freely. Judging from the level of unemployment in various countries, the unemployment rate in Germany has dropped below 7%, which is lower than the pre-crisis level, but the unemployment rate in Spain is as high as 2 1.2%. On the other hand, EU countries only unified the external tariff rate, but did not transfer the corporate tax rate. At present, the highest corporate tax rate is 34.4% in France, 34% in Belgium, 3 1% in Italy, 29.8% in Germany and 28% in Britain. The corporate tax rate of other marginal countries and eastern European countries is generally lower than 20%. These countries with low tax rates are also countries with abundant labor. The combination of capital and labor makes the economies of these countries expand continuously, and the capital is mainly invested in pillar industries, such as processing and manufacturing, real estate and tourism, which leads to bubbles in the domestic economy. From the trend of the euro against the US dollar, we can see that before the subprime mortgage crisis, the euro was in an upward channel for a long time, and exports were hit to a certain extent. The industrial and manufacturing industries in southern European countries are underdeveloped and less favored by funds, which leads to the trade deficit of these countries increasing year by year. Countries make up for it by issuing bonds. It is precisely because of the appreciation of the euro that European debt is welcomed by investors and the borrowing cost is low, forming a vicious circle.

Third, there is no exit mechanism in the design of the euro zone, and the negotiation cost is high after problems arise. Because the exit mechanism was not fully considered when the euro zone was established, it posed a difficult problem to deal with the euro zone crisis in the future. After individual member States encounter problems, they can only solve their problems through meetings and discussions within the EU. The market is also ups and downs in repeated discussions, which makes it impossible to solve the crisis in time. In recent years, the crazy credit expansion of European banks has led to increasing operational risks, and the ratio of total assets to core capital even exceeds that of American counterparts affected by subprime loans.