AMF ANNUAL FINANCIAL CONVENTION MADRID, 21 NOVEMBER 2016 Franois - PowerPoint PPT Presentation

AMF ANNUAL FINANCIAL CONVENTION – MADRID, 21 NOVEMBER 2016 François Villeroy de Galhau, Governor of the Banque de France 1

The European social model  High standards of public service  Relatively low levels of inequality Government spending Gini coefficient after tax and transfers % of GDP in 2015 in 2015 55,0 0,45 More inequality 48,4 50,0 0,40 45,0 43,0 0,35 42,0 40,0 0,30 38,0 36,3 35,0 0,25 31,3 Less inequality 30,0 0,20 Note : (1) For the United States, 2014 data 2 Sources : OECD; Eurostat; IMF

The need for reforms Several European countries have succeeded in carrying out in-depth reforms:  Sweden 1990s  Germany 2000s  Spain 2010s Progress made in 4 key areas (Enterprise, Employment, Education and Expenditure reduction) is delivering results today. Aggregate GDP growth Aggregate growth in market sector 2014 and 2015 (%) employment, 2014 and 2015 (%) 4 8 France Italie France Italy 7 Zone Euro Allemagne Euro area Germany Espagne Spain Suède Sweden 3 6 5 2 4 3 1 2 1 0 0 Source: Eurostat 3

From the saving glut … EMEs’ saving glut in the 2000s… 35 as a % of GDP 33 31 29 27 EME Savings 25 23 21 19 17 Source: IMF WEO database 15 4

…to the investment crunch EMEs’ saving glut in the 2000s… 35 as a % of GDP and/or 33 ADVs’ investment crunch now 31 29 Euro Area 25 EME Savings as a % of GDP 27 ADV Investment 23 25 23 21 21 19 Euro area 19 Investment 17 17 Euro area Savings Source: IMF WEO database 15 15 5

Business investment Productive investment rate in the total economy GFCF in machinery and equipment and intellectual property in % of value added, in value terms 13,0 12,0 11,0 Euro area Germany Spain 10,0 France 9,0 8,0 Source: Eurostat, BdF calculations. 6

A significant change in businesses’ behaviour Euro area net lending/net borrowing percentage of GDP, 4-quarter averages Households Non-financial corporations Financial corporations General government Euro area 9 6 3 0 -3 -6 -9 2007 2009 2011 2013 2015 Source: Eurostat/ECB, latest observation: 20016Q2. 7

Economic levers Determinants of business investment growth Contribution to the business investment slowdown, panel of 22 advanced economies, 1996-2014 3% 17% 80% expected demand uncertainty other Source: Matthieu Bussière, Laurent Ferrara and Juliana Milovich, ‘Explaining the recent slump in investment: the role of expected demand and uncertainty’, Banque de France WP n°571, September 2015. 8

Financial levers: Europe is lagging behind NFC liabilities: net equity capital and financial debt as a % of GDP 180% Innovative investments 160% 42% 140% 120% 57% 100% New financing 64% 80% 60% 121% 40% 80% 52% 20% Equity capital needs 0% Euro area United Kingdom United States equity debt Source: Banque de France; data as of 31 Dec. 2015 9

Financial levers: cost of equity 10 12 14 16 0 2 4 6 8 in % Cost of equity in the euro area janv.-07 Source: Banque de France. mai-07 sept.-07 Risk premia (Long Term) janv.-08 mai-08 sept.-08 janv.-09 mai-09 sept.-09 janv.-10 mai-10 sept.-10 janv.-11 10-year Bund mai-11 sept.-11 janv.-12 mai-12 sept.-12 janv.-13 mai-13 CoE (EA: FR + IT + SP + ALL) sept.-13 janv.-14 mai-14 sept.-14 janv.-15 10 mai-15 sept.-15 janv.-16 mai-16

Three steps towards economic union A “Financing and Investment Union” • Capital Markets Union + Juncker Plan + Banking Union • Better channel abundant European savings (current account surplus of EUR 350 bn / year) towards productive investment across borders A collective economic strategy • Combine more structural reforms (France, Italy) and more fiscal support (Germany) • An institution fostering confidence: the euro area Finance Minister In the longer term, a European fiscal capacity • A euro area stabilisation tool: unemployment insurance scheme • A means to finance certain « European public goods » • The ability to issue common debt and even raise taxes 11