When will the debt stop growing?-Stabilising the government debt

Transcription

abc
Economics
Europe
Global Research
When will the debt
stop growing?
Stabilising the government debt burden
in the Eurozone
 Even with the latest austerity
measures…
 …government debt in the Eurozone is
set to rise above 90% by 2013
More talk than action
Markets are focused on the fiscal challenges facing Greece
and other peripheral economies, but the public debt burden
has increased sharply across the Eurozone, rising by nearly
20% of GDP between 2007 and 2010. In this report we
attempt to gauge the impact of all of the latest fiscal
consolidation announcements for the Eurozone countries on
our government deficit and debt projections.
There is plenty of austerity rhetoric, but aggressive steps are
only being taken in the periphery and our estimates show the
likely outlook is still one of larger deficits in most Eurozone
member states this year than in 2009. Despite some
improvement in the deficit from 2011 onwards, we expect
the debt-to-GDP ratio to keep growing until at least 2013, by
which time it will be easily over 90% of GDP.
21 June 2010
Janet Henry*
Economist
HSBC Bank plc
+44 20 7991 6711
Mathilde Lemoine*
Economist
HSBC France
+33 1 40 70 32 66
[email protected]
[email protected]
We acknowledge the assistance of James Hodges in the
production of this report.
View HSBC Global Research at: http://www.research.hsbc.com
*Employed by a non-US affiliate of HSBC Securities (USA) Inc,
and is not registered/qualified pursuant to NYSE and/or NASD
regulations
Issuer of report: HSBC Bank plc
Disclaimer & Disclosures
This report must be read with the
disclosures and the analyst certifications
in the Disclosure appendix, and with the
Disclaimer, which forms part of it
To stabilise the debt burden, most countries will have to turn
a large and growing primary deficit into a primary surplus
within the next three years. Based on current fiscal plans this
is only possible in the event of a sustained period of abovetrend growth which closes the output gap.
Under our more sluggish outlook, much more austerity will
have to be delivered. We estimate that fiscal policy will be
roughly neutral this year and tightening of no more than 1%
of GDP is currently planned for 2011, but annual tightening
of more than 3% of GDP in 2011-2013 would be needed to
stabilise the debt-to-GDP ratio at the 2009 level by 2013.
A higher level of public debt implies that, even if long-term
interest rates remain stable, a larger share of national wealth
will be spent servicing the debt and if governments remain
unprepared to cut the level of services and welfare spending
then it will imply persistent increases in taxes. It will
increase the likelihood that sovereign risk becomes corporate
risk, raising the cost of capital and lowering capital
spending. This implies lower growth, although the impact
will vary between Eurozone states, posing new challenges
for monetary policy and integration in the Eurozone which
are unlikely to be resolved any time soon.
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Economics
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21 June 2010
Contents
When will the debt stop growing? 3
Deficits, debts and growth
3
Growing government deficits…
5
…to get even bigger in 2010…
6
…and decline only slowly thereafter
8
Striving for a primary surplus
11
Threat of higher interest rates
14
Sovereign risk can become corporate risk
16
Praying for a stronger rebound in nominal growth
16
Inflation risks on the downside
17
Germany appears unwilling to bolster growth
18
Japan-lite?
18
Re-writing the rules
19
Conclusions
20
Appendix I: calculating the primary surplus
22
Appendix II: sensitivity of public finances to output gap 24
2
Appendix III: main recent austerity measures
25
Appendix IV: nominal GDP growth assumptions
28
Appendix V: retirement ages in Europe
29
Disclosure appendix
30
Disclaimer
31
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Economics
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21 June 2010
When will the debt stop
growing?
 Despite the latest austerity announcements and ongoing growth...
 ...the scale of the primary deficits rule out stabilisation in
government debt stock in any Eurozone country before 2013...
 ...implying serious consequences for European integration and
economic growth
Deficits, debts and growth
Over the past few months the public finance
problems faced by the Greek government have
gradually evolved into a full-blown fiscal crisis
for the Eurozone. Despite the commitment to
EUR860bn of financial support for Eurozone
countries in need of financial assistance and the
European Central Bank opting to buy government
debt, the markets have been quick to realise that
these steps do not resolve the fundamental
medium-term challenges. The support measures
will simply buy a breathing space during which a
growing number of countries have to take the
necessary steps to rein in the budget deficit and
implement a broad range of structural reforms
which will restore competitiveness, curb the
growth in long-term unfunded pension liabilities
and put these economies on a more sustainable
long-term growth path.
Markets are now not only fretting about whether
governments can implement such harsh measures
in the face of strong public opposition, but are
also questioning the commitment of the larger
Eurozone member states to provide the necessary
financial support. And with more governments
queuing up to make claims about imminent
austerity measures, concerns about the impact on
Eurozone and global growth continue to heighten.
In this report we attempt to gauge the impact of
all of the latest fiscal consolidation
announcements for the Eurozone countries on our
deficit and debt projections. Despite the
consolidation rhetoric, our estimates show the
likely outlook is still one of larger deficits in most
Eurozone member states this year and, despite
some improvement from 2011 onwards, a
growing debt burden which is set to continue
rising until at least 2013. This suggests much
more savage spending cuts will have to be
implemented in most member states in the coming
years. We consider the implications for growth
and the cost of capital, both of which are likely to
show much greater variation between member
states than in the past. This will not ease the
pressure on the Eurozone’s largest and relatively
less-fiscally-challenged economy – Germany – to
do more to bolster growth in the region and will
pose new challenges for monetary policy and
integration in the monetary union.
3
Economics
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21 June 2010
abc
Flow vs. stock: the relationship between government budget deficits and government debt
Government budget deficits, which are basically the flow of public finances, deteriorated in 2008 and
2009, and are set to deteriorate further in 2010 in most cases for four reasons:
1)
deep recessions and, more recently, weak growth imply both lower tax revenues and higher social
security spending, particularly on unemployment benefits ( “automatic stabilisers”);
2)
direct additional fiscal-stimulus packages;
3)
direct financial support plans (i.e., governments taking stakes in banks) do not directly add to the
budget deficit immediately, but they do add to the debt stock, and once this feeds through into
government bond issuance, it adds to subsequent budget deficits through higher interest payments.
Consequently, the stakes that governments took in banks in 2008 will be reflected in higher
government spending and larger deficits in 2009;
4)
in many cases spending on interest payments has also risen as a consequence of the growth in the
debt stock while in some the interest rate has also increased particularly in 2010. The budget
balance excluding interest payments is called the “primary balance”. When the primary balance
is adjusted for cyclical influences (the “automatic stabilisers”) it is called the “structural
balance”. In other words, a calculation of what the budget deficit would be if the economic
activity was at a normal level.
The outstanding amount of government debt (on the Maastricht criteria), or the stock, is growing as a
consequence of:
1)
the budget deficit adding directly to the debt stock;
2)
governments taking stakes in – or hybrid securities of – banks or other financial companies, either
through public sector funds (e.g. SoFFin in Germany or SPPE in France) or the government
directly. The amount they purchase is added directly to the debt stock.
3)
liabilities incurred by Spain’s FROB (Fund for Orderly Bank Restructuring)
What is NOT included in the debt stock on the Maastricht criteria:
4
1)
in a situation where the government is deemed to be exerting sufficient control over a bank
(setting lending targets, board membership, etc.), even if the government does not have majority
ownership, the bank can be classified as a public-sector entity and the net debt of the bank is
classified as public-sector debt in some countries’ national definitions. The debt projections in this
publication, which are just for government debt (on the Maastricht definition), do not include this;
2)
the amounts that governments have allocated for bank recapitalisations but which have not yet
been spent;
3)
the large amount of contingent liabilities that national governments have accumulated as a
consequence of government guarantees on, for instance, banks’ bonds or so-called “bad banks”
such as Ireland’s NAMA issuance are NOT included until losses actually materialise;
4)
the guarantees that Eurozone governments will provide to the special purpose vehicle (EFSF) that
will be tapped by countries that can no longer finance their deficits and redemptions in the bond
markets. Loans extended by the EFSF will be reflected as a rise in the debt stock of the recipient.
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Economics
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21 June 2010
Growing government
deficits…
A widespread problem
Large and growing government debt burdens are
widespread in the Eurozone. The financial and
economic crisis of 2008-09 resulted in massive
government deficits, with the authorities
deploying discretionary stimulus packages – tax
cuts, aid for private demand and additional public
investment – to prevent an excessive contraction
in GDP. These measures were on top of the
“automatic stabilisers” comprising reduced tax
receipts (a result of weaker activity) and increased
government expenditure on unemployment
benefits.
As a share of GDP, the average government
deficit in the Eurozone widened by 4.3% points in
the course of 2009 to reach 6.3% of GDP. The
peripheral countries, such as Greece and Spain,
continue to attract most of the attention but the
1. The budget deficit has ballooned in the Eurozone…
% GDP
7
Eurozone
% GDP
7
6
6
5
5
4
Maastricht limit
3
4
3
2
2
1
1
0
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Budget deficit
Source: European Commission and HSBC Research
strained public finances are now a widespread
problem. Of the 27 EU member states, 25 are in
the excessive deficit procedure including all 16 of
the Eurozone member states. As part of that
process, countries receive recommendations from
the European Council on how to tackle the deficit.
In response, national governments are required to
submit a Stability and Growth Programme (SGP)
setting out how they will narrow the deficit to the
2. …with all of the Eurozone member states already in the excessive deficit procedure
Countries subject to Excessive Deficit Procedure
Countries NOT subject to Excessive Deficit Procedure
Eurozone
Austria
Belgium
Cyprus
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Malta
Netherlands
Portugal
Slovakia
Slovenia
Spain
Other EU
United Kingdom
Poland
Czech Republic
Denmark
Bulgaria
Hungary
Latvia
Lithuania
Romania
Sweden
Estonia
Source: European Commission and HSBC Research
5
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21 June 2010
3. Fiscal tightening does not begin to bite in the Eurozone aggregate until 2011
Fiscal effort*
% of GDP
______________________ 2010f _______________________ ___________________ 2011f____________________
% of member
state’s GDP*
Austria
Belgium
Cyprus
Germany
Greece
Spain
Finland
France
Ireland
Italy
Luxembourg
Malta
Netherlands
Portugal
Slovenia
Slovakia
Eurozone
Contribution to Eurozone
effort (% GDP)
-1.1
0.9
-0.3
-1.6
7.0
2.6
-1.8
-0.2
3.4
-0.2
-2.7
-0.6
-1.2
2.2
-0.2
1.0
0.0
0.0
0.0
0.0
-0.4
0.2
0.3
0.0
0.0
0.0
-0.1
0.0
0.0
-0.1
0.0
0.0
0.0
0.0
% of member
state’s GDP*
Contribution to Eurozone
effort (% GDP)
0.1
-0.2
-0.6
0.4
4.0
2.8
0.5
0.8
0.0
1.0
-0.3
0.4
0.9
3.2
0.7
0.7
1.0
0.0
0.0
0.0
0.1
0.1
0.3
0.0
0.2
0.0
0.2
0.0
0.0
0.1
0.1
0.0
0.0
1.0
*Change in the cyclically-adjusted primary balance (i.e. structural balance). A negative value indicates a fiscal loosening. Source: European Commission and HSBC Research
3% of GDP limit prescribed by the Maastricht
Treaty between 2010 and 2013. In most cases the
projections contained in those programmes appear
overly optimistic.
As the deterioration in government deficits in the
Eurozone over the past two years stems largely
from the primary balance (i.e. the budget balance
excluding interest payments) that is what we have
focused on in the near-term projections rather than
make any assumptions about interest rates,
although the cost of issuing debt for some
countries has clearly risen this year.
As the starting point for our analysis we have
taken the SGPs, most of which were published in
January. We have incorporated the expenditure
and revenue plans then adjusted them to
incorporate our own (generally lower) GDP and
inflation assumptions as well as the various
additional fiscal steps which have been announced
for Greece, Ireland, Spain and Portugal, Italy,
Germany, France, Finland, Slovenia and
Luxembourg (see appendix III) over the past few
months.
6
Our estimates suggest that the Eurozone deficit
and that of most of its constituent member states
will continue to grow this year even though the
economy started to edge out of recession from
mid-2009 and is expected to continue growing
throughout 2010.
…to get even bigger in
2010…
On the expenditure side, further increases in
unemployment will push spending on benefits
higher. On the revenue side, tax revenues are
assumed to grow in line with HSBC’s relatively
weak nominal GDP forecasts (see appendix IV),
although there is a lag between the upturn in
activity and the resulting gain in tax receipts. This
will limit the recovery in revenues from what
were very depressed 2009 levels. Note that the
upswing in business activity will produce
increases in
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Economics
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21 June 2010
corporate tax receipts only in 2011 in most
European countries2. Other tax receipts are related
in part to employment and also lag the upturn in
activity. The level of unemployment, which is still
rising in most Eurozone states, will continue to
weigh on VAT receipts again this year.
In some countries there is also an outright
loosening of fiscal policy. In Finland, Germany,
the Netherlands and Austria, stimulus measures
are continuing in 2010 which is roughly offsetting
the aggressive fiscal consolidation which has
already begun in Greece, Ireland, Spain and
Portugal. Hence, on our calculations fiscal policy
in the Eurozone this year is likely to be roughly
neutral (table 3).
4. France, Italy and the Netherlands have the most cyclical
public finances
Elasticity of the budget balance to output gap
France
Italy
Netherlands
Belgium
Germany
Finland
Austria
Greece
Luxembourg
Portugal
Spain
Ireland
Slovakia
0.53
0.53
0.53
0.52
0.51
0.48
0.47
0.47
0.47
0.46
0.44
0.38
0.37
Source: OECD1 The full breakdown of the semi-elasticities of corporate tax and personal tax
etc to GDP can be found in appendix II.
It is these two effects – the additional stimulus
spending and the cyclical rise in the public deficit
due to the automatic stabilisers – that explain the
ongoing deterioration in the Eurozone deficit in
2010. Spending on unemployment benefits and
welfare spending will continue to rise and the
revenue improvement will be limited at this stage
of the cyclical upturn. We have used the standard
methodology of approximating the impact of the
cycle on government finances using the elasticity
of receipts and spending with respect to the output
gap3.
The elasticity of the budget balance with respect
to changes in the output gap varies considerably
between countries, as table 4 shows. The most
cyclical public finances are in France, Italy and
the Netherlands where a 1 percentage-point
increase in the output gap (more slack in the
economy) results in a 0.53% point deterioration in
the budget balance, all other things being equal.
Slovakia is the least cyclical – a 1%-point
increase in the output gap results in a 0.37% point
deterioration in the budget balance.
Once the primary balance has been adjusted for
these cyclical influences it is known as the
structural balance. Estimating structural balances
is always difficult in real time and particularly
difficult currently given the scale of the financial
crisis and recession which mean it is hard to have
much confidence in any estimates of trend growth
but we have used the European Commission’s
estimates.
Overall, the primary and general government
deficit should still widen in 2010 in Germany,
France, Italy, Austria, Finland, Luxembourg,
Netherland, Malta and Cyprus (table 5).
1 Girourd, N. and C. André (2005), “Measuring Cyclically-adjusted Budget
3 The output gap is the difference between actual and potential GDP (GDP –
Balances for OECD Countries”, OECD Economics Department Working
potential GDP) / potential GDP). For estimating potential GDP growth, we
Papers, No. 434, OECD publishing, © OECD
used the European Commission data available for all Eurozone countries set
2 For example, in France, income tax receipts pick up the year after income
out in appendix V. and for the elasticities of tax revenues to GDP we used
recovers. And corporate tax are also taken with one year lag as in Germany.
OECD estimates.
In Italy, income tax and corporate tax payments also lag by a year after.
7
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Economics
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21 June 2010
5. HSBC budget deficit forecasts (% GDP)
Austria
Belgium
Cyprus
Germany
Greece
Spain
Finland
France
Ireland
Italy
Luxembourg
Malta
Netherlands
Portugal
Slovenia
Slovakia
Eurozone
2009
2010f
2011f
2012f
2013f
-3.4
-6.1
-6.1
-3.1
-13.6
-11.2
-2.4
-7.5
-14.3
-5.2
-0.7
-3.8
-5.3
-9.4
-5.5
-6.8
-5.8
-5.2
-9.5
-5.1
-9.8
-10.3
-5.4
-8.6
-12.4
-5.8
-5.1
-6.1
-7.1
-9.1
-6.2
-6.8
-4.1
-4.8
-9.2
-4.6
-8.7
-7.1
-4.8
-6.9
-11.5
-5.5
-5.2
-3.5
-6.5
-7.8
-4.8
-5.7
-3.8
-4.0
-7.7
-3.7
-7.1
-6.8
-4.8
-5.7
-10.0
-5.3
-4.9
-3.3
-4.9
-6.6
-4.1
-5.2
-3.5
-3.2
-6.2
-2.8
-6.7
-6.7
-3.3
-4.5
-8.7
-4.7
-4.6
-3.1
-3.3
-5.1
-3.5
-4.4
-6.3
-7.1
-5.9
-5.1
-4.3
Source: HSBC forecasts *Eurostat has warned that the 2009 deficit could be revised bigger
by 0.3% to 0.5% of GDP
In Belgium, Greece, Ireland4, Spain, Portugal and
Slovakia, the public deficit should narrow because
of the discretionary tightening steps being
undertaken but there is clearly a high degree of
uncertainty about the immediate impact of the
fiscal tightening on growth. The fear is that the
tightening does so much damage to growth that
there is a negative feedback loop on the public
finances (chart 6). The data for the public finances
in the early months of this year have, however,
been encouraging. The Greek budget deficit
6. Risk of a negative feedback loop on the public finances
Source: HSBC
4 The projected improvement in Ireland’s deficit in 2010 looks bigger than
might be expected because the very large 2009 deficit includes the EUR4bn
(2.5% of GDP) which was injected into the nationalised Anglo Irish Bank in
June 2009 and which was reclassified as a capital transfer rather than
remain a financial transaction.
8
narrowed 41% y-o-y in January-April as revenues
rose 10% partly as a result of the much improved
collection effort.
…and decline only slowly
thereafter
From 2011 onwards, the end of these stimulus
packages and continued economic growth will
tend to narrow the budget deficits in the Eurozone
but the improvement will be limited. The main
impact on expenditure will come from less
stimulus spending rather than discretionary cuts
other than in Greece, Ireland and Spain.
On the revenue side the permanent loss of
potential output caused by the crisis also means
that the improvement in government revenues will
be small in many countries (and in some countries
revenue will fall slightly) due to lags and the scale
of the output gaps. Reducing the output gap takes
time after a deep recession, particularly following
a financial crisis when a recovery is less likely to
be robust. For instance, in the case of the
Eurozone aggregate, GDP has been expanding
since mid-2009 but at such lacklustre growth rates
(0.4% q-o-q in 3Q09, 0.2% in 4Q09 and 0.1% in
1Q10) that the output gap has not narrowed even
assuming a new low trend growth rate (chart 7).
To make matters worse, structural deficits5 have
widened as a result of the crisis because some
discretionary measures are not easy to reverse.
For instance, the VAT cut for hotels in Germany
or incentives for promoting youth employment in
France may well outlive the stimulus packages
with which they are associated. European
governments themselves recognise that structural
deficits, though set to narrow by 2013, will
remain high.
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Economics
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21 June 2010
Under a scenario of weak GDP growth and a slow
narrowing of the output gap, simply returning to
the long term average growth in structural
spending will not be enough to reduce the public
deficit from 2011 except in Germany. This is
because Germany had low trend growth and low
public spending growth for much of the past
decade (table 7). Consequently, the automatic
stabilisers won’t weigh on public spending after
2010. But in many other countries (including
France, Greece and Austria), where the fall in
trend growth has been sharper and the output gap
will be slower to narrow, the automatic stabilisers
will continue to operate until 2013.
More talk than action
Therefore, in order to reduce the public deficit
after 2011, the governments will have to apply
bigger consolidation programmes to slow the
trend rise in public expenditures. Budgetary
consolidation programmes are being announced
from one Eurozone government or another on an
almost daily basis at the moment. But, for all of
the talk about spending “cuts” most governments
are assuming at least some growth in public
spending over the next few years. Many of the
commitments to “freeze central government
expenditure” will not offset the rise in social
security spending, pensions or local government
spending. Greece is delivering the most austerity
7. Recovery to date has not narrowed output gap
% GDP
Eurozone - output gap
% GDP
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
8. Average growth in government spending between 1998 and
2007
% Yr
Real
Nominal
Ireland
Cyprus
Slovakia
Luxembourg
Spain
Greece
Slovenia
Portugal
Malta
Netherlands
France
Belgium
Finland
Italy
Austria
Germany
6.3
5.9
2.9
4.3
3.3
3.2
6.6
2.6
8.1
2.3
2.1
1.8
1.7
1.0
1.6
0.6
10.2
9.1
7.8
7.5
7.0
6.5
6.2
5.8
5.4
4.8
3.8
3.7
3.4
3.4
3.1
1.4
Sources: Eurostat and HSBC
as a consequence of its fourth austerity package
but has planned stabilisation in nominal public
spending in 2011 and in 2012 after a sharp decline
2010. Excluding Greece and Spain, none of the
Eurozone countries are currently planning a
decline in nominal public spending from 2011 to
2013 despite the end of the fiscal stimulus plan
and the narrowing of the output gap.
Many of the recent announcements of cuts in
some areas of government spending are simply
spelling out the detail of the broad public
spending curbs planned in the SGP and still will
not stabilise the debt-to-GDP ratio. For example,
in France, the announcement last week by the
prime minister of a reduction of EUR45bn in
public spending as an “austerity program” is
aimed at hitting the 3% deficit objective for 2013
already stated in the Stability Programme
published in January. It does not represent a
bigger consolidation than planned previously.
-8
-8
02
03
04
05
06
Previous assumed trend
07
08
09
10
New assumed trend
Previous assumed trend growth is 1.9%. New assumed trend growth rate in 2009 is
0.7%. Source: European Commission and HSBC Research
9
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Economics
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21 June 2010
9. VAT - the quickest way to show seriousness about increasing revenue
%
25
%
25
Upper Limit
20
20
Lower Limit
UK
Sweden
Spain
Slovenia
Slovakia
Romania
Portugal
Poland
Netherlands
Malta
Luxembourg
Lithuania
Lativa
Italy
Ireland
Hungary
Greece
Germany
France
Finland
0
Estonia
0
Denmark
5
Cyprus
5
Czech
Republic
10
Bulgaria
10
Belgium
15
Austria
15
VAT rate
Source: Government tax departments. Note: Upper and Lower Limit are imposed by the EU; Rates shown include planned increases due to take effect on 1st July; Spanish VAT set to rise by 2pts from 16% to 18%, Portuguese
VAT to rise by 1pt to 21% and Greek VAT to rise from 21% to 23%.
VAT and public sector pay under
attack
In the most fiscally-challenged countries where
tougher steps are being taken VAT increases have
proved to be a preferred measure (by
governments) as they are an effective way of
immediately collecting more revenue and showing
seriousness about taking the necessary fiscal
action. On the spending side the public sector pay
bill has been particularly under attack, with pay
cuts in Spain, Ireland and Greece and three-year
pay freezes being implemented in Italy. It is
interesting to note, however, that none of the
peripheral countries are among those with the
largest share of the workforce in the public sector
(table 10) suggesting that over time some of the
other countries may be able to do more in this
area by gradually reducing headcount even if they
are unable to cut wages.
Nonetheless, with ageing populations, the
spending measures that have been announced will
not be enough to reduce the public spending trend
growth. According to the European Commission,
government spending related to the elderly will
rise by 5.1% points of GDP between 2010 and
10. Public sector employment (share of total employment)
2008
Malta*
France*
Slovenia
Netherlands**
Finland
Slovakia
Greece
United Kingdom*
Ireland
Cyprus
United States
Spain
Italy
Germany**
Portugal*
Austria**
Luxembourg
Note: *2006 **2007. Source: ILO, and HSBC calculations
10
Total public sector (%)
General government (%)
Publicly-owned companies (%)
30.8
29.0
27.9
27.0
26.3
22.8
22.3
20.2
17.7
17.6
16.4
14.6
14.4
14.3
...
...
10.8
27.7
26.1
18.1
15.8
...
12.6
8.6
19.0
15.7
15.0
...
13.8
14.4
10.2
13.1
11.8
10.8
3.0
3.0
9.8
11.1
...
10.2
13.7
1.2
2.0
2.6
...
0.7
...
4.1
...
...
...
abc
Economics
Europe
21 June 2010
2060, of which 2.7% points for pensions and 2.6%
points for healthcare. The countries which face
the biggest increase in age-related spending –
Greece and Spain – are even tackling the highly
politically-charged issue of pension reform. But
even these policies will merely make the projected
rise in such spending less marked over the long
term.
To rein in spending over the next few years will
require much greater austerity than has so far been
agreed on as current revenue and spending plans
do not stabilise the debt burden without a strong
rise in nominal growth. The experience of other
countries’ successful fiscal consolidations in the
past suggests that capital investment will bear the
brunt of the spending cuts.
Striving for a primary surplus
The debt burden will keep growing...
Changes in the ratio of government debt to GDP
depend on the following:
- The existing debt-to-GDP ratio, reflecting past
government policy;
- The ratio of the primary balance (excluding
interest payments) to GDP;
- the differential between the nominal interest
rate and the nominal growth rate. (If the
nominal interest rate is higher than the
nominal GDP growth rate, a primary surplus
is required to stabilise the government debt
ratio).
In addition to these factors, we have to take
account of government support for the financial
system in the form of capital injections and asset
purchases at market prices. While this support
does not affect the budget deficit, it does raise the
debt stock. According to the ECB, the cumulative
increase in government debt between 2008 and
2009 stemming from banking sector capital
11. Financial sector cumulated interventions and their fiscal
impact in Eurozone countries (2008-09)
% GDP
The Netherlands
Luxembourg
Belgium
Ireland
France
Slovenia
Eurozone
Germany
Spain
Austria
Greece
Italy
Cyprus
Malta
Fiscal impacta
Contingent liabilitiesb
18.2
8.3
7.4
4.2
3.8
3.6
3.3
2.9
1.8
1.7
1.6
0
0
0
5.0
12.8
21.0
214.8
1.1
0.0
7.5
6.3
3.1
6.6
0.6
0.0
0.0
0.0
Notes: aImpact of capital injections and asset purchases on government debt. Data as at midMay 2009. bGuarantees on retail deposits are not included.
Source: ECB (July 2009 Monthly Bulletin)
injections and asset purchases represented an
average 3.3% of Eurozone GDP. There were big
differences between countries, however, ranging
from zero in Italy to 18.2% in the Netherlands
(table 11). And, this may not be over because in
the recent financial stability review, the ECB
estimated that euro area banks would need to
make loan-loss provisions of around EUR105bn
in 2011 after EUR90bn in 2010.
The guarantees provided to the financial sector
(7.5% of GDP by mid-2009) only raise the debt
stock in the event of a call on those government
guarantees (i.e. the debt burden rises if losses
materialise). Similarly the guarantees that
Eurozone governments have agreed to provide for
up to EUR440bn of bond issuance by the
European Financial Stability Facility (EFSF) will
not show up as an increase in the debt stock of the
government providing the guarantee (except in the
unlikely event of a debt restructuring) but will be
reflected as an increase in the debt stock of the
country receiving the loan from the EFSF.
...so more consolidation needed
We are not being overly negative in our mediumterm projections shown in table 13: we are not
forecasting a double-dip or a sharp rise in interest
11
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Economics
Europe
21 June 2010
12. Main features of the European stabilisation mechanism*
Facility characteristics
Size
Guarantee structure for debt
Approval required from national parliaments
Local characteristics
Eligibility for loans
Conditionality for borrower
Loans provided jointly with international agencies
European Stabilisation Mechanism
European Financial Stabilisation Facility (EFSF)
€60 billion
EU budget
€440 billion
Cash buffer plus 120% guarantee of each euro area
countries' pro rata share of issued bonds (i.e. overcollateralised)
No
Yes**
EU countries
Economic and fiscal adjustment
programme required
Yes - IMF funds expected to amount to an
additional €30 billion
Euro area countries
Economic and fiscal adjustment programme
required
Yes - IMF funds expected to amount to an additional
€220 billion
Interest rate charged to governments borrowing from these facilities
Euribor +300bp (+400bp if >3yrs) + 50bp
* Note that the funds available via these facilities are in addition to the €110 billion EU/IMF fund for Greece and the ECB’s purchases of government debt. The EU/IMF funds from the stabilisation
mechanism will be used before the EFSF is tapped but there is a possibility that it issues debt pre-emptively. **Yes each country has to approve its country's participation as a guarantor of the SPV
(France and Germany already have) but we understand that once it is established they do not have to approve it when the SPV makes a loan to an individual country. Full detail and confirmation of the
SPV is expected to be available in the next week or two. Source: European Commission, Council of the European Union, press reports and BIS. See also Euro SPV: the devil is in the detail 8 June 2010.
rate for example. But the risks to our forecasts are
heavily skewed to the downside. Even with our
conservative hypothesis, we find that virtually all
of the governments would have to generate
primary surpluses in order to stabilise their debtto-GDP ratios by 2013. Tax receipts will have to
be greater than government expenditure excluding
debt service costs.
13. Government debt
% of GDP
2009
2010f 2011f 2012f
2013f
Austria
Belgium
Cyprus
Germany
Greece
Spain
Finland
France
Ireland
Italy
Luxembourg
Malta
Netherlands
Portugal
Slovenia
Slovakia
Eurozone
66.4 71.0 73.3 75.2
97.0 100.6 102.7 103.9
56.2 64.0 70.6 75.2
73.2 75.7 79.0 80.9
115.1 134.9 148.1 153.4
53.2 64.8 71.8 77.4
43.9 52.0 58.0 63.8
78.1 83.7 87.9 90.6
64.0 83.5 91.1 96.9
115.8 119.0 121.8 124.4
14.5 19.2 25.4 31.0
69.2 73.7 74.2 74.5
60.9 66.9 70.9 74.3
76.8 86.4 91.4 95.5
36.0 41.1 44.3 46.8
35.7 41.4 45.4 48.6
78.8 84.5 88.6 91.5
76.8
104.0
78.6
82.0
157.9
81.8
68.1
92.2
101.8
126.0
36.2
74.8
75.6
97.7
48.5
50.6
93.4
Sources: HSBC calculations
12
However, according to the stability programmes
that Eurozone countries have sent to the European
Commission (and which for some countries have
been updated) most of the Eurozone governments
are not projecting a primary surplus during this
period. And where they are planning a primary
surplus (Belgium, Greece, Italy and Malta) by
2013 it is not enough to stabilise the debt-to-GDP
ratio. Therefore, if there are no new
announcements of a reduction in structural public
spending, the debt-to-GDP ratio could continue to
grow after 2013 to about 95% of GDP by 2015.
To illustrate the scale of the adjustment that lies
ahead if governments are serious about stabilising
the debt burden any time soon, we have calculated
the primary balance that would be needed in order
to stabilise the debt-to-GDP ratio (table 14). For
instance, in the case of Eurozone, to stabilise the
debt-to-GDP ratio at the end 2009 level of 78.8%
of GDP would require a primary surplus of 3.5%
of GDP in 2010. By 2013 a primary surplus of
1.2% of GDP would be required to stabilise the
debt-to-GDP ratio at the end-2012 level of 91.5%.
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Economics
Europe
21 June 2010
14. The primary balance needed to stabilise the debt burden
% GDP
2009
2010f
2011f
2012f
2013f
Austria
Government debt
Primary balance
Primary balance for debt stabilisation
66.4
-0.8
3.6
71.0
-3.0
1.3
73.3
-1.2
0.8
75.2
-0.8
0.8
76.8
-0.5
0.7
Belgium
Government debt
Primary balance
97.0
-2.3
5.4
100.6
-1.3
1.9
102.7
-0.9
0.8
103.9
0.1
0.9
104.0
0.9
0.9
Cyprus
Government debt
Primary balance
56.2
-3.6
3.3
64.0
-6.8
0.6
70.6
-6.3
0.2
75.2
-4.6
0.3
78.6
-2.7
0.4
Germany
Government debt
Primary balance
73.2
-0.4
4.8
75.7
-2.7
0.6
79.0
-2.1
0.5
80.9
-0.7
0.9
82.0
0.2
0.9
Greece
Government debt
Primary balance
115.1*
-8.6
5.6
134.9
-3.4
8.7
148.1
-1.6
10.7
153.4
1.0
6.0
157.9
2.2
6.8
Spain
Government debt
Primary balance
53.2
-9.3
3.2
64.8
-8.2
2.0
71.8
-4.6
0.7
77.4
-3.9
0.6
81.8
-3.5
0.8
Finland
Government debt
Primary balance
43.9
-1.0
3.7
52.0
-3.7
0.4
58.0
-2.6
0.3
63.8
-2.0
0.7
68.1
-0.3
0.9
France
Government debt
Primary balance
78.1
-5.1
3.8
83.7
-6.0
0.6
87.9
-4.0
0.1
90.6
-2.7
0.1
92.2
-1.3
0.2
Ireland
Government debt
Primary balance
64.0
-12.2
6.3
83.5
-8.8
5.0
91.1
-7.3
0.8
96.9
-5.3
1.2
101.8
-3.6
1.3
Italy
Government debt
Primary balance
115.8
-0.5
7.9
119.0
-1.0
2.2
121.8
-0.2
2.4
124.4
0.5
2.8
126.0
1.2
2.9
Luxembourg
Government debt
Primary balance
14.5
-0.2
1.1
19.2
-4.3
0.2
25.4
-4.2
0.1
31.0
-3.7
-0.1
36.2
-3.3
-0.2
Malta
Government debt
Primary balance
69.2
-0.6
3.2
73.7
-2.3
1.7
74.2
0.3
0.9
74.5
0.4
0.8
74.8
0.6
0.8
Netherlands
Government debt
Primary balance
60.9
-3.0
4.8
66.9
-4.4
1.6
70.9
-3.9
0.6
74.3
-2.1
0.6
75.6
-0.5
0.7
Portugal
Government debt
Primary balance
76.8
-6.6
3.9
86.4
-5.5
2.0
91.4
-3.6
1.9
95.5
-2.1
2.1
97.7
-0.5
1.9
Slovenia
Government debt
Primary balance
36.0
-4.1
2.7
41.1
-4.0
0.8
44.3
-2.7
0.3
46.8
-1.8
0.5
48.5
-1.0
0.6
Slovakia
Government debt
Primary balance
35.7
-5.3
2.4
41.4
-4.5
0.6
45.4
-3.4
0.0
48.6
-2.8
-0.1
50.6
-1.9
-0.1
Eurozone
Government debt
Primary balance
78.8
-3.4
4.8
84.5
-4.0
1.6
88.6
-2.7
1.0
91.5
-1.5
1.1
93.4
-0.5
1.2
*Eurostat has warned that the debt burden for 2009 could be revised up by 5%-7% of GDP. Source: Eurostat, and HSBC forecasts and calculations
13
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Economics
Europe
21 June 2010
To put current plans in context, our calculations
suggest that Eurozone governments are currently
planning a fiscal tightening of about 1% of GDP
in 2011. Based on our nominal growth
assumptions, to stabilise the debt-to-GDP ratio at
the 2009 level over the next four years (i.e. by the
end of the SGP period in 2013) the consolidation
required for the Eurozone would be EUR334bn
per year or 3.6% of Eurozone GDP per year. This
is a bigger adjustment than that undertaken by
either Sweden or Canada during their most
dramatic 3-4 year periods of consolidation in the
1990s.
...which may not all be bad for growth
It is worth bearing in mind at this point, that while
fiscal consolidation is invariably negative for
growth in the short term and fears will persist that
fiscal tightening now will topple the Eurozone
back into recession, it can also bring positive
benefits, not least by removing some of the
uncertainties faced by the private sector in the
absence of a credible fiscal consolidation period.
When public debt ratios are high restrictive fiscal
policies can reduce the risk premia which reflect
the risk of default or inflation and boost
confidence in future policies which would bring
obvious benefits for the cost of capital for the
private sector (see below on page 16). These
confidence effects can also boost private
consumption when consumers feel that such
consolidation will increase their permanent
income and could limit a partial Ricardian effect.
Our calculations for France suggest a rise of 1%
point in the public deficit to GDP ratio cuts
household spending by 0.74% point.
Threat of higher interest rates
Greater debt means larger debt service costs. In
the past the rating agencies have tended to
downgrade countries whose debt service costs
represent more than 10% of tax revenues. Our
projections are shown in table 16.
14
We may distinguish three groups of Eurozone
country from this point of view.
1.
The risky group in which the debt service
burden exceeds 10% of tax revenues in
2013;
2.
The intermediate group in which debt
service costs exceed 5%;
3.
The safe group in which debt service
costs are less than 5%.
In the risky group only Italy and Greece already
have a ratio higher than 10% in 2009 but Spain,
Ireland and Portugal are set to join them in the
next couple of years (table 15).
In the intermediate group there is Germany where
the interest rate burden could rise above 7% of tax
revenues by 2013, as well as France, Netherlands,
Slovakia and Slovenia.
On our projections there is just one Eurozone
country in the “safe” group: Luxembourg where
the ratio should stay below 3% in 2013.
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Economics
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21 June 2010
15. Distribution of remaining maturities of marketable central government securities
Germany
France
Italy
Belgium
Netherlands
Austria
Greece
Ireland
Spain
Finland
Portugal
United Kingdom
Sweden
Switzerland
Canada
United States
Japan
Portion of the debt maturing
within one year (%)
Portion of the debt maturing
within three years (%)
Portion of the debt maturing Average maturity of remaining
within ten years (%) central government marketable
securities (Years)
February 2010
December 2009
January 2010
January 2010
January 2010
20
26
23
22
28
43
44
45
42
49
15
19
19
14
13
6.5
6.9
6.9
5.7
5.5
8.5
7.4
6.7
6.7
6.7
6.2
January 2010
February 2010
March 2010
9
14
16
20
31
34
42
25
20
13.0
January 2010
March 2010
33
17
56
37
9
18
6.2
4.7
6.3
Source: OECD calculation based on national data and HSBC Research
These estimates are based on a stable interest rate
(see appendix I) as it is already clear that most
countries will not benefit from the structural
decline in global long-term interest rates in the
way that the likes of Canada and Sweden did in
the 1990s and which was so important in the
dramatic scaling back of government spending as
interest rates are already so. On our projections
interest payments on Eurozone government debt
as a share of GDP still rise from 2.8% in 2009 to
3.8% in 2010 just because of the rise in the debt
stock.
The obvious risk is that interest rates are actually
higher from here, which has been a major
motivation for the much more rapid fiscal
consolidation that is now coming through in the
periphery. Countries with low average maturity of
debt (table 15) are at particular risk as a sudden
rise in market interest rates feeds in to higher debt
servicing costs more quickly. OECD projections
assume that when government debt exceeds 75%
of GDP long-term interest rates increase by 4
basis points for every additional percentage point
increase in the debt-to-GDP ratio. Now that the
stabilisation facilities (table 12) are being set up,
however, there will be an interest rate ceiling of
about 5% for loans of three-year maturity that
member states will pay as long as they implement
the required consolidation steps to meet the
conditions under which the EU/EMU/IMF loans
are provided.
16. Interest payment costs as % of tax revenues
2009 2010f 2011f 2012f 2013f
Greece
Ireland
Italy
Portugal
Spain
Belgium
Cyprus
Malta
Slovakia
Germany
France
Austria
Netherlands
Finland
Slovenia
Luxembourg
13.6
6.2
9.9
6.9
5.2
7.8
6.2
7.9
4.4
6.3
4.8
5.6
4.8
2.7
3.2
1.2
15.4
10.3
10.5
8.5
5.8
7.9
6.5
8.8
6.7
5.9
5.4
5.9
5.7
3.4
4.7
2.0
16.4
11.8
11.2
9.6
6.8
7.9
6.9
8.8
6.8
5.9
5.7
6.2
5.6
4.1
4.6
2.6
18.6
13.2
12.2
10.3
7.7
8.2
7.3
8.7
7.2
7.2
6.0
6.2
5.9
5.2
5.2
3.1
20.3
14.0
12.4
10.3
8.6
8.2
7.8
8.9
7.5
7.2
6.3
6.3
6.0
5.8
5.6
3.3
HSBC calculations
15
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Economics
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21 June 2010
Sovereign risk can become
corporate risk
If austerity cannot be delivered and interest rates
in some countries continue rising, the problems
will not just be confined to sovereigns.
Companies will also find themselves subject to
the markets’ new-found focus on sovereign risk, a
subject we discussed in A single currency but no
longer a single interest rate (May 17). If
government bond yields rise, funding costs for
local banks are likely to rise too. The subsequent
squeeze on margins either restricts the supply of
credit or, alternatively, leads to higher interest
rates on loans. The rise in interest rates for large
listed companies in those countries facing
sovereign risk concerns has thus far been
negligible, at least judged by the standards of past
crises. They are often able to raise funds in dollars
and sterling in addition to euros and, if necessary,
they could relocate their business to another
country.
For smaller companies, however, these options
are not so easily available. For them, the danger is
that they find themselves increasingly distanced
from policy rate decisions made by the ECB
merely because of their ‘nationality’. The good
news in the short term (for the corporates, if not
the real economy) is that many European
companies are currently repaying debt, suggesting
that there should be no huge immediate impact.
They are more likely to be hit over the next two or
three years as existing debts are refinanced. Either
way the result is lower investment.
Aside from the cost of finance, another key risk
for a company residing in a country with a very
weak fiscal position is the obvious danger of a rise
in corporate taxation which severely limits posttax profits and, in turn, hinders the company’s
ability to repay existing debts. Ireland has so far
managed to keep its exceptionally low corporate
tax rate, which is it main comparative advantage,
16
but Portugal is raising some corporate tax rates as
part of its latest package of measures (appendix
III). Other countries, where politicians are subject
to much greater public opposition in the
distribution of the austerity measures, may find
they face no other option other than to share the
burden with corporates.
Praying for a stronger
rebound in nominal growth
The deficit and debt projections are highly
sensitive to the nominal GDP growth outlook. If
growth were to surprise even slightly to the upside
the debt burden starts to ease much more quickly.
If nominal GDP growth for the Eurozone is 4%
(2% GDP and 2% inflation) from 2011 to 2013
rather than the 3% we have assumed, the deficit
would be -2.7% in 2013 rather than the 4.3% we
are forecasting. It is notable, however, that
countries such as France where the growth
assumption would go from below-potential to
above-potential and where the public finances are
most cyclical, would see much more upside than,
for instance, Germany where our forecast for
2010-2013 is already above the EC’s estimate of
potential growth. The Eurozone debt-to-GDP ratio
would peak in 2012 at about 86% of GDP.
17. New disinflationary influences in the Eurozone
% Yr
Core HICP ex energy, food, alcohol & tobacco
% Yr
5
4
3
2
1
0
-1
-2
-3
-4
5
4
3
2
1
0
-1
-2
-3
-4
03
04
05
Eurozone
Source: Eurostat, and HSBC
06
07
Spain
08
09
Greece
10
Ireland
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Economics
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21 June 2010
Inflation risks on the downside
trajectory. Hence, comparisons have inevitably
been drawn between these peripheral countries
and those countries which remained on the Gold
Standard in the 1920s and 1930s when the less
competitive countries had no option other than to
deliver such painful internal adjustments that they
threatened to unleash political turmoil.
Unfortunately, however, it seems more likely that
nominal growth in the most-fiscally challenged
economies is more likely to surprise current
government forecasts on the downside, more on
inflation than on real GDP. The latest data suggest
that, unlike in Greece, which has moved into a
deep recession, GDP now appears to be
expanding (albeit modestly) in Portugal, Ireland
and Spain. However, inflation is very low and,
once the impact of the new VAT rises in Spain
and Portugal have run their course, inflation is set
to run well below the Eurozone average (chart
17). This is something that was not incorporated
into the SGP programmes published earlier this
year which continued to assume that inflation
would be around 2% – i.e. above that of the
countries such as Germany which it most needs to
regain competitiveness against.
Fortunately, unlike the Gold Standard, the
Eurozone has a lender of last resort in the form of
the Eurosystem of central banks which have been
a provider of unlimited loans of various maturities
to the banking system since the beginning of the
crisis (chart 19) and which recently resorted to
making outright purchases of government debt of
the peripheral countries.
This will help to ease some of the pressure on
governments in the peripheral countries but is no
substitute for the spending cuts, tax increases and
structural reforms which need to come through to
rein in the deficit and put these economies back
on a sustainable growth path. They are unlikely to
be able to achieve this alone. Domestic demand
will remain weak as household incomes continue
to be squeezed so any expansion will be driven
almost entirely by net exports (which does not
generate as much revenue as domestic-demand-
Taking the most extreme example of Greece,
under a deflation scenario of -3% per year in
2010-2012 (rather than the IMF assumption of
about 0.6% per year), the debt-to-GDP ratio
would peak at close to 180% of GDP (chart 18).
Thus, more and more austerity would be required
to put the debt-to-GDP ratio back on a sustainable
18. Deflation would make Greece’s debt burden even less sustainable
% GDP
Greece: public sector debt projections
% GDP
190
190
170
170
150
150
130
130
110
110
90
90
70
70
2008
2009
2010
2011
2012
2013
IMF baseline scenario
Deflation (3% lower inflation in 2010-2012)
2014
2015
2016
2017
2018
2019
2020
GDP growth 1% lower
GDP growth 1% higher
Source: IMF and HSBC Research
17
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Economics
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21 June 2010
led growth). This would be similar to Germany in
2001-2005 when the latter was undergoing its
deflationary adjustment having joined the euro at
an uncompetitive exchange rate. Germany had the
benefit of exporting into an environment of strong
world trade when parts of the Eurozone and
elsewhere in the developed and emerging world
were registering robust growth. Unfortunately it
will not be as easy for the periphery.
19. Not quite the Gold Standard as there is a lender of last
resort
EUR bn
150
Outstanding loans from central bank
to country's banking system
EUR bn
150
120
120
90
90
60
60
30
30
0
0
05
06
Spain
07
Greece
08
09
Portugal
10
Ireland
Source: CEIC, National central banks
Germany appears unwilling to
bolster growth
In theory, the new roles for countries within the
monetary union should be quite straightforward.
Many commentators argue that countries with
excess savings (read Germany) should do more to
revive growth domestically through, for instance,
more expansionary fiscal policy, and allow others
in the monetary union to regain competitiveness
and export their way back to growth. Reality,
however, is rarely as straightforward as theory.
There are a number of factors mitigating Germany
taking on this new role as the reflationary
influence in the Eurozone any time soon.
First, Germany’s public finance position is
healthier than many but the debt-to GDP ratio is
still set to hit nearly 76% by the end 2010 and a
new constitutional budgetary rule adopted late last
year in Germany prescribes a structural deficit of
18
0.35% by 2016. (On our projections in table 13 it
should achieve this by 2013 so it does not imply
any additional tightening beyond current plans but
would not permit a big stimulus).
Second, the last time that personal income taxes
were cut in Germany in 2004, consumers
responded by raising their savings rate in the
knowledge that the deteriorating fiscal position
would inevitably mean tax increases further down
the road. Add to these facts the rapidly
deteriorating demographic position and it appears
that Germany is highly unlikely to register a
strong rebound in consumer spending in the next
few years.
One could argue that, through a weaker euro, the
market is trying to force a reflation on the German
economy whereby an even stronger rebound in
export growth feeds through into strong business
investment and new hiring in 2011, eventually
feeding through into consumer spending which
would help to lift growth elsewhere in the
Eurozone. In the absence of a very strong global
rebound over the next two years, Germany's
reluctance or inability to do more to support
growth and to run a higher inflation rate than the
1%-1.5% range it appears set to settle at,
ultimately condemns some parts of the Eurozone
to years of sub-par growth, disinflationary
tendencies and rising debt burdens. This in turn
could mean that countries such as Germany will
be required to provide ever more stabilisation
funds and rescue packages to assist the weaker
economies.
Japan-lite?
As the Eurozone aggregate has a net savings
position with high household savings and now
even a corporate sector surplus, the Eurozone
could muddle through in a kind of Japan-lite lowgrowth, low-inflation type scenario for some time
where more and more private sector savings are
channelled into government debt purchases
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Economics
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21 June 2010
(charts 20-21). We can even envisage a scenario
whereby, assuming Greece meets its
conditionality over the next year or two, some
kind of negotiated restructuring or maturity
extension of Greek debt occurs and the burden is
borne by European governments one way or
another.
Nonetheless even this scenario, which would
involve debt burdens continuing to rise
indefinitely in the most troubled economies,
would ultimately be unsustainable with the
monetary union in its current form. Clearly, some
re-writing of the EU fiscal rules and arrangements
is already under discussion by policymakers and
European leaders to ensure a Greek type of
situation is not repeated. The proposal for mutual
surveillance of national governments’ fiscal plans
is already proving controversial. Nonetheless,
having seriously compromised the “no-bailout”
clause in the Treaty, it needs to be replaced with
something credible so some kind of redesign
appears inevitable. We set out some possible
scenarios in Greece and the Eurozone: To junk
and beyond (April 28).
Re-writing the rules
One possibility is that the Eurozone becomes even
more closely integrated, with the development of
a federal fiscal system similar to that which
already exists in the US today in which the
common budget is large and its disbursement is
determined by means of some kind of unified
political process. This, however, would be a leap
into the political unknown and would require
Germany, in particular, to use its deep pockets
more willingly at a time where there appears to be
no kind of appetite for any kind of “transfer
union” either from its population or government.
Building on the EFSF SPV, which may be the
first step to a “Eurozone bond”, could potentially
be the next move in this direction.
A second possibility is simply to accept that we
now live in a monetary union in which individual
nation states will be prone to default risk from
time to time if they are unable to control their
fiscal urges. Both this option and the first option
would of course require clear enforceable
sanctions such as the removal of voting rights and
the end of access to EU cohesion funds. The third
possibility is that the Eurozone breaks up and
countries go their separate ways.
None of these possibilities is pleasant. Nor are
they imminent, suggesting the current volatility in
20. Throughout the 1990s private savings in Japan were
channelled into deficit financing
% GDP
15
Japan Net lending/borrowing
21. Could the same happen in the Eurozone?
% GDP
15
10
10
4QMA
% GDP
6
5
5
3
3
0
0
0
0
-5
-5
-3
-3
-10
-10
-15
-15
-6
-6
80
85
90
95
Corporates
General government
Source: Bank of Japan
00
05
Households
10
4QMA
% GDP
6
Eurozone Net lending/ borrowing
-9
-9
00
01 02 03
Corporates
04
05 06 07
Households
08
09
Government
Source: Thomson Reuters Datastream
19
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21 June 2010
markets could still have quite a long way to run
especially as the ECB appears set to continue with
its current policy of buying government debt but
only in relatively small quantities (chart 22). The
lack of a strong commitment by the ECB to buy
vast amounts of debt or to make an unequivocal
statement that it will do “whatever it takes” may
be an attempt by the central bank to keep up the
pressure on governments to do more to rein in
their deficits while it waits for the EFSF to be
established and start issuing debt. If the latter can
be done pre-emptively (i.e. before a country
requests a loan from it) Eurozone politicians and
policymakers could even be viewed as getting a
little ahead of the curve.
22. ECB purchases have slowed
EURbn
20
ECB government debt purchases
EURbn
20
15
15
10
10
5
5
0
0
14 May
21 May
28 May
4 June
ECB purchases
11 June
Weekly purchases by Eurosystem central banks. Source: ECB, and HSBC
Conclusions
More fiscal tightening ahead. The primary
deficits across the Eurozone are large and growing
so, to stabilise the debt burden, most countries
will have to run a primary surplus within the next
three years. Based on current fiscal plans this is
only possible in the event of a sustained period of
above-trend growth which closes the output gap.
Unfortunately, our forecasts show only sluggish
growth rates for the Eurozone and its component
countries as the household and corporate sectors’
continue to deleverage, undermining domestic
demand. We expect the Eurozone aggregate
20
government deficit to narrow markedly in 2011 in
line with the end of stimulus measures and rise in
tax receipts but only gradually thereafter.
Currently, the tax rises and spending curbs will
not be sufficient to stabilise the debt-to-GDP
ratios until 2013 at the earliest in most Eurozone
countries. More worryingly, the necessary period
of consolidation is unlikely to benefit from the
tailwind of falling interest payments but will face
the headwind of rising age-related spending.
Lower trend growth and growth divergences.
A higher level of public debt implies that, even if
long-term interest rates remain stable, a larger
share of national wealth will be spent servicing
the debt and if governments remain unprepared to
cut the level of services and welfare spending then
it will imply persistent increases in taxes. If
interest rates are higher it will also imply a lower
level of private capital spending which would also
lower trend growth. The impact will vary between
Eurozone states, resulting in growing disparities
in economic performance. It is the damage that
has been done to many countries’ trend growth
that has not yet been factored into many of their
medium-term fiscal projections, implying that it is
going to take longer to stabilise the debt burden
than they are currently projecting. This also
means that governments will not be well placed to
respond to any future recession with a fiscal
stimulus. Italy is a case in point in the 2008 crisis
when the very high government debt burden
meant it was unable to boost spending, instead
relying on the indirect benefit of the fiscal
stimulus in the likes of France and Germany.
Monetary policy challenges. As for the impact of
the ongoing rise in the debt burden on monetary
policy, the challenges are also growing. A poor
public finance backdrop not only threatens
eventually to push up long-term inflation
expectations but also complicates the forecasting
process for central banks which are attempting to
Economics
Europe
21 June 2010
abc
set interest rates at the appropriate rate. This is not
a challenge at this stage of the recovery, with
inflation risks very much to the downside, but the
ECB remains wary that further down the road a
rise in inflation expectations, which may well be
generated by external developments, could leave
it in the difficult position of having to consider
rate increases at the same time as continuing with
some of its non-conventional measures.
More pain but any gain? Addressing the public
finances will take time and will require more and
more announcements of much greater austerity
than has already been agreed on and many more
painful reforms of labour markets and pension
policies in particular. However, it is important to
bear in mind that while fiscal consolidation is
invariably negative for growth in the short term,
so long as the population does not find the shortterm pain too unpalatable, it can also bring
positive benefits. As well as the benefits to private
demand from a lower tax burden these include the
rewards from the structural reforms to improve
flexibility and restore competitiveness which are
essential to put the Eurozone on a more
sustainable long-term growth path.
21
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21 June 2010
Appendix I
What kind of primary surplus is
needed to stabilise the debt burden?
In order to determine whether governments will
be able to stabilise the debt-to-GDP ratios before
the end of the stability and growth pact period, i.e.
2013, we have calculated the primary balance
required to achieve that end:
Primary balance for debt stabilisation =
government debt in previous year * (nominal
interest rate6 – nominal GDP growth rate).
We made some assumptions on nominal GDP
growth, fiscal and spending elasticities to GDP
and interest rates7.
-
GDP growth: for 2010 and 2011, we used
HSBC’s GDP growth forecasts and then
assumed that nominal GDP growth in 20122013 remained at the same rate as in 2011.
-
The cyclical position of the economy
measured by the output gap: to evaluate it, we
have taken the European Commission
potential growth measure.
-
Inflation: we also used HSBC forecasts for
2010 and 2011 then we applied the 2011
forecast for 2012 and 2013.
-
For the fiscal and spending elasticities to GDP
we used the OECD hypothesis (see appendix
II).
For structural government spending (i.e.
excluding interest spending, stimulus measures
and automatic stabilisers), with the exception of
Greece, Ireland, Portugal and Spain, we assumed
an increase at the same rate in 2010 as during
6
7
We use the interest rate paid on public debt in average
See Stephen King, “And when the money runs out”, 18 May
2009
22
1998-2007, i.e. by more than governments are
projecting or have announced. Then from 2011 to
2013, nominal public spending growth is assumed
to grow at the same rate as between 1996 and
1999 i.e. the last post-recession recovery period.
For 2012 and 2013, we have based our spending
estimates on inflation.
1. Effective interest rate on government debt
2009
Austria
Belgium
Cyprus
Germany
Greece
Spain
Finland
France
Ireland
Italy
Luxembourg
Malta
Netherlands
Portugal
Slovenia
Slovakia
%
4.2
3.9
5.1
3.9
5.0
4.6
3.8
3.6
4.3
4.4
4.3
5.2
4.0
4.3
5.2
5.9
Source: HSBC calculations
The interest rate on government debt was
calculated with the implicit or effective interest
rate on public debt (table 1) but the rise in the debt
stock still implies a significant rise in debt service
costs (table 2).
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21 June 2010
2. Interest payments (% GDP)
2009
2010f
2011f
2012f
2013f
Germany
2.6
2.5
2.5
3.0
3.0
France
2.3
2.6
2.8
3.0
3.1
Italy
4.6
4.9
5.3
5.7
5.8
Spain
1.8
2.1
2.5
2.9
3.3
Austria
2.7
2.8
2.9
2.9
3.0
Belgium
3.8
3.9
3.9
4.1
4.1
Finland
1.4
1.8
2.1
2.7
3.1
Luxembourg
0.5
0.8
1.0
1.2
1.3
Ireland
2.1
3.7
4.2
4.7
5.0
Greece
5.0
6.4
7.1
8.1
8.8
Slovakia
1.5
2.2
2.3
2.4
2.5
Slovenia
1.4
2.2
2.1
2.4
2.5
Netherlands
2.2
2.6
2.6
2.7
2.8
Portugal
2.9
3.6
4.3
4.7
4.9
Cyprus
2.5
2.7
2.9
3.2
3.6
Malta
3.2
3.8
3.7
3.7
3.7
Eurozone
2.8
3.1
3.3
3.6
3.8
Source: HSBC forecasts based on a stable interest rate
23
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21 June 2010
Appendix II
Sensitivity of components of public finances to 1% change in output gap
% GDP
Euro area average
Germany
France
Italy
Austria
Belgium
Finland
Greece
Ireland
Luxembourg
Netherlands
Portugal
Slovak Republic
Spain
United Kingdom
Czech Republic
Denmark
Hungary
Poland
Sweden
New EU members
average
United States
Japan
OECD average
Corporate tax
Personal tax
Indirect tax
Social security
contributions
Current
expenditure
Total balance
1.43
1.53
1.59
1.12
1.69
1.57
1.64
1.08
1.30
1.75
1.52
1.17
1.32
1.15
1.66
1.39
1.65
1.44
1.39
1.78
1.38
1.48
1.61
1.18
1.75
1.31
1.09
0.91
1.80
1.44
1.50
1.69
1.53
0.70
1.92
1.18
1.19
0.96
1.70
1.00
0.92
1.15
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
0.74
0.57
0.79
0.86
0.58
0.80
0.62
0.85
0.88
0.76
0.56
0.92
0.70
0.68
0.91
0.80
0.72
0.63
0.69
0.72
0.71
-0.11
-0.18
-0.11
-0.04
-0.08
-0.14
-0.18
-0.04
-0.11
-0.02
-0.23
-0.05
-0.06
-0.15
-0.05
-0.02
-0.21
-0.03
-0.14
-0.15
-0.06
0.48
0.51
0.53
0.53
0.47
0.52
0.48
0.47
0.38
0.47
0.53
0.46
0.37
0.44
0.45
0.39
0.59
0.47
0.44
0.55
0.42
1.53
1.65
1.50
1.30
1.17
1.26
1.00
1.00
1.00
0.64
0.55
0.71
-0.09
-0.05
-0.10
0.34
0.33
0.44
Note: The last column is the semi-elasticity which measures the change of the budget balance, as a per cent of GDP, for a 1 change in GDP. It is based on 2003 weights. Aggregate country zone
averages are unweighted.
Source: OECD Economic Outlook 76 database and OECD estimates.
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abc
Appendix III
The main austerity measures announced in the Eurozone since the Stability Programme
submissions
Greece
_________________ Receipts __________________
______________________Expenditure ______________________
2010
Additional measures = 1.8% of GDP
VAT hike (4.5% => 5%, 9% => 11%, 19% => 23%)
Increase in excise duties
Additional measures = -3.1% of GDP
Extension of wage freeze to all public sector employees: -€200 million
Additional cut of 7 in public sector nominal wages and pensions: -€1.7 billion
The 13th and 14th month pay for civil servants and employees of public sector
firms (Christmas, Easter and summer bonuses), which were already cut by 30% in
March, are being abolished for those earning above 3,000 euros a month and will
be capped at 1,000 euros for those earning less.
2% cut in civil servants and employees of public sector firms wage supplements
Cuts in State funding for DEI (the public power corporation) and OTE (the telecoms
operator) pension funds
Cancellation of planned pension increases for the public and private sector
Cuts in current spending and investment: -€700 million
Cuts in intermediate consumption
Additional 9 cut in pensions (lower Easter, summer and Christmas bonuses, known
as the 13th and 14th months + drop in highest pensions)
Cancellation of temporary solidarity benefit included in the Stability Programme
2011
Additional measures + 2010 measures = 3% of GDP (€6.6 billion)
Base effect of 2010 measures: €1.6 billion
Additional measures: €5 billion
• Crisis levies on firms: €600 million per year between 2011 and 2013
• Clampdown on land use tax evasion: €1.5 billion between 2011 and 2013, of
which €500 million in 2011
• Presumptive corporation tax: €400 million in 2011
• Broadening VAT base: €1 billion
• Green tax on CO2 emissions: €300 million in 2011
• Gaming tax (sales of licences and royalties): €700 million
• Extension of property tax base: €400 million
• Increased taxation of wage in kind: €150 million
• Taxation of unauthorised premises: €800 million
• Excise tax on luxury goods: €100 million
• Book specification of income: €50 million
Additional measures + 2010 measures = -1.1% of GDP (€2.55 billion)
Base effect of 2010 measures: -€900 million
Additional measures: -€1.65 billion
• Additional €300 million cut in intermediate consumption between 2010 and 2011
• Reforms of central and local civil service (Kalikrates) to reduce administrative
expenses by €500 million in 2011
• Public and private sector pension freeze except in case of deflation: €100
million in 2011
• Cuts in investment: €500 million in 2011
• Introduction of unified public sector wages: €100 million
• Additional cut in the highest pensions: €150 million
2012
Additional measures + 2010 and 2011 measures = 0.8% of GDP (€1.7 billion) Additional measures + 2010 and 2011 measures = -1.7% of GDP (€3.85 billion)
2013
Additional measures + past measures = -0.3% of GDP (-€600 million)
•
Additional measures + past measures = -2.3% of GDP (€5.4 billion)
In addition Greece has announced a progressive increase of the retirement age from 60 to 65 over the next 3 years and new calculation of pensions.
Sources: Government announcements, IMF program, HSBC
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Spain
Italy
May 2010: accelerated spending cuts worth €15 billion over two
years
May 2010: new measures
Spending cuts totalling €5.25 billion in 2010 and another €10 billion
in 2011, i.e. a cumulative -0.5% of GDP in 2010 and -1.5% of GDP in
2011
 Average civil service wage cut of 5 from June 2010, then freeze
in 2011: -€2.3 billion in 2010, -€4.5 billion in 2011
 Suspension of automatic indexation of pensions in 2011: €1.53 billion in 2011
 Abolition of transitory partial retirement scheme in June 2010:
€250 million in 2010, another -€150 million in 2011
 Abolition of retrospective dependency allowances: -€300 million
in 2011
 Abolition of €2,500 new baby bonus in 2011: -€1.25 billion in
2011
 Cuts in medicine reimbursements: -€275 million in 2010, another
€1.225 billion in 2011
 Cuts in investment
 Cuts in local authority grants: -€1.2 billion in 2011
Sources: Government announcements, HSBC
Portugal
May 2010: new measures
2011 Stability Programme measures brought forward to 2010
 Review and reinforcement of social security spending controls
 Change to unemployment benefit system
 Taxation of capital gains on financial instruments
 Special Personal Income Tax rate of 45% for incomes over
€150,000
Increases in receipts: 0.6% of GDP in 2010, 1.4% of GDP in 2011
 1%-point VAT hike (20% => 21%): 0.3 of GDP in 2010, 0.7 of
GDP in 2011
 1%-point hikes in first three income bracket of Personal Income
Tax and 1.5 points in higher brackets: 0.2 of GDP in 2010, 0.4 of
GDP in 2011
 2.5%-point hike in corporation tax for companies declaring profits
higher than €2 million: 0.1% of GDP in 2010, 0.2% of GDP in 2011
 Additional taxation of consumer credit and introduction of
motorway tolls: 0.1 of GDP in 2011
Spending cuts: 0.5% of GDP in 2010, 0.8% of GDP in 2011
 Anticipated phasing-out of anti-crisis measures: -0.1% of GDP in
2010
 Cuts in transfers to public sector firms: -0.2% of GDP in 2010, 0.2% of GDP in 2011
 Cuts in current central government spending: -0.1% of GDP in
2010, -0.2 of GDP in 2011
 5% wage cut for elected representatives and managers of public
sector firms
 Cuts in investment: -0.1% of GDP in 2010, -0.2% of GDP in 2011
 Cuts in transfers to Regional and Local Governments: -0.1% of
GDP in 2010, 0.1% of GDP in 2011
Increases in receipts
Countering tax evasion
 Partial amnesty for individuals that have not declared their homes
to the government
 Additional tax on stock options and bonuses
 Sterner action against tax evasion and disability pension fraud
Spending cuts
 Cuts in transfers to local Governments: -€4.5 billion in 2011, -€4.5
billion in 2012 (a cumulative 0.6% of GDP)
 Public sector wage freeze between 2011 and 2013
 Only one out of every five retiring civil servants to be replaced
between 2011 and 2013
 Up to 10% cut in highest public sector salaries, including
ministers and members of parliament (-5% for salaries between
€90,000 and €130,000, -10% for higher salaries, -10% for ministers
paid €80,000 or more)
 Additional between three to six-month wait for employees initially
expecting to retire in 2011
 10% cut in ministry current expenditures expenses in 2011 and
2012 and therefore abolition of selected public agencies (e.g. ISAE),
cuts in subsidies to political parties
 Abolition of provincial governments in areas with fewer than
220,000 inhabitants
 From 2015 onwards, indexation of retirement age on changes in
life expectancy
Ireland
Announcement of a 5% cut in ministries’ current spending
France
June 2010: government announcements
Receipts
 €5 billion in tax hikes
 additional tax on high income, stock options, saving, capital
gains from investments higher employer payroll taxes (EUR4bn) and
progressive rise in retirement contribution for public employee
Spending
 Central government expenditure frozen for three years rather
than in line with inflation => €2-2.5 billion to be saved in 2011
 10% cut in current expenditures over three years, of which 5% in
2011 => savings of €8-9 billion over the period
 10% cut in redistribution transfers over three years (including
development aid, agricultural and employment subsidies, social
security transfers) “without an impact on government spending on
health and social protection” => savings of €7 billion
 The announcement of EUR45bn of cuts over the period to 2013
was the detail of the broad spending projections set out in the SGP.
 Progressive increase of the retirement age from 60 to 62 over the
next 8 years
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Germany
Slovenia
June 2010: a projected €86 billion in savings between now and
2014, €81.6 billion already announced
No new measures announced and no changes to Stability and
Growth Pact, but more detail on pension reforms
Receipts: +€19.2 billion
 Higher taxes on businesses (mainly the energy and banking
sectors): €19.2 billion
Retirement age raised from 2011 onwards
 Men:
Legal retirement age to be raised to 65
Minimum retirement age to be raised from 58 to 60, and on
condition of 40 years’ contributions
 Women
Legal retirement age to be raised to 63
Minimum retirement age to be raised from 57 to 60, and on
condition of 37 years’ contributions
Spending: -€62.4 billion
 Abolition of ecological conversion subsidy: -€9.5 billion
-€2 billion in 2011
-€2.5 billion in 2012
 Adjustments in social security spending (reduction in long term
unemployment benefits and in child education benefit): -€30.3 billion
 Cuts in military spending: -€4 billion
 Other spending cuts: -€18.8 billion
Finland
No austerity announced, but revisions to projections of
surpluses and receipts
Cut in deficit from €13.9 billion in 2010 to €12 billion, 2009 debt
revised to €76 billion (44% of GDP)
 Public spending to rise €328 million
 Upward revision to receipts projection: +€843 million
Higher than expected corporation tax receipts: +€712 million
Supplementary transfer from the Bank of Finland to the central
government: €110 million
Luxembourg
April 2010: new measures
Spending cuts: -€450-500 million per year until 2014
 Cuts in investment: limited to 2009 levels
 10% cut in current public expenditures in 2011
 Freeze on value of an index point for civil service wage for four
years and abolition of meals allowance
 Cuts in transfer payments to households
Abolition of the new school year allowance
Abolition of family benefit for over 21s, but increases in university
scholarships and student loans
Reduction in maternity/paternity leave from six to four months and
changes to education benefit
Right to the child education pension (for parents that have devoted
themselves to their children’s education and for that reason have not
worked enough for State pension rights) raised from 60 to 65
Abolition of pension indexation during the present parliament
Abolition of interest premiums in housing subsidies
 10% cut in business subsidies
 Central government share of financing for water purification
plants cut from 90% to 75%
 Abolition of infrequently used bus and rail services
Increases in receipts: €200 million per year
 Increase in top rate of income tax from 38% to 39%
 Rise in tax on income from 38.95% to 42% on incomes over
€250,000 per year and per person
 Ceiling on tax deductions for companies paying bonuses and
golden parachutes
 Solidarity tax hike
 Introduction of a crisis tax
 Introduction of a tax on financial activities
 No indexation of income tax bands n inflation
 Cancellation of planned cut in corporation tax
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Appendix IV
Nominal GDP assumptions (% Yr)
2010f
2011f
2012f
Austria
Government
HSBC
2.1
2.4
2.9
3.1
3.4
3.1
3.6
3.1
3.3
3.1
-0.2
Belgium
Government
HSBC
2.4
1.9
3.6
3.0
4.1
3.0
…
3.0
3.9*
3.0*
-0.9
Cyprus
Government
HSBC
2.2
3.2
3.5
3.8
5.1
3.8
5.4
3.8
4.7
3.8
-0.9
Germany
Government
HSBC
2.0
2.7
3.0
2.7
3.0
2.7
3.0
2.7
3.0
2.7
-0.3
Greece
Government/IMF
HSBC
-2.8
-2.8
-3.1
-3.1
2.1
1.2
2.8
1.2
0.6
-0.2
-0.8
Spain
Government
HSBC
0.1
0.3
2.6
2.9
4.5
3.4
4.8
3.4
4.0
3.2
-0.7
Finland
Government
HSBC
1.9
2.5
4.0
3.1
5.7
3.1
5.2
3.1
5.0
3.1
-1.9
France
Government
HSBC
2.5
2.7
4.0
3.4
4.3
3.4
4.3
3.4
4.2
3.4
-0.8
Ireland
Government**
HSBC
-2.2
-3.4
5.6
3.6
6.7
3.6
6.5
3.6
6.2
3.6
-2.6
Italy
Government
HSBC
2.2
2.4
3.3
2.5
3.9
2.5
…
2.5
3.6*
2.5*
-1.1
Luxembourg
Government
HSBC
3.9
2.9
5.4
3.5
4.3
4.2
4.4
4.2
4.7
4.0
-0.7
Malta
Government
HSBC
3.5
2.7
5.0
3.8
5.0
3.8
…
3.8
5.0*
3.8*
-1.2
Netherlands
Government
HSBC
1.5
1.2
3.0
2.8
3.0
2.8
…
2.8
3.0*
2.8*
-0.2
Portugal
Government
HSBC
1.5
1.6
3.0
2.4
3.3
2.4
3.8
2.7
3.4
2.5
-0.9
Slovenia
Government
HSBC
1.4
3.0
4.6
4.0
6.0
4.0
5.7
4.0
5.4
4.0
-1.4
Slovakia
Government
HSBC
5.9
3.8
7.5
5.1
8.9
5.1
…
5.1
8.2*
5.1*
-3.1
Eurozone
Government
HSBC
1.7
2.0
3.2
2.8
3.8
2.9
…
3.0
3.5*
2.9*
-0.7
Note: *Average 2011-2012 **These projections are from the December SGP and so are already out of date.
Source: HSBC, National Governments, IMF
28
2013f Average 2011-2013
Difference
abc
Economics
Europe
21 June 2010
Appendix V
Retirement ages in Europe
Country
Statutory* Retirement Age
(Women/Men)
Planned Increase
Notes
60/65
65
Retirement age for women will
gradually be increased to 65 in
2024-2033
Austria
Belgium
Bulgaria
Cyprus
Czech Republic
Denmark
Estonia
Finland
64/65
59y 6m/63
65
56-60/61y 10m
65
60y 6m/63
62-68
France
Germany
60
65
Greece
60/65
Hungary
Ireland
Italy
62
66
60/65
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
62
60/62.5
65
60/61
65
60/65
65
58/63
55-59/62
61/63
65
Sweden
61-67
UK
60/65
Points system, allows retirement
after 63 for men, provided they
have accumulated 100 points
(given in terms of years of work),
and 60 and 94 points for women
65
67
Between 2024 and 2027, and
established that the retirement age
will be indexed according to the
average life expectancy
Flexible, with built-in incentives to
remain active in the labour market
62
By 2018
67 Phased in gradually from 2012 to
2029
65 The normal retirement age will be
set at 65 and increase with life
expectancy, while benefits will be
indexed to prices
It is possible to retire earlier if 35
years of contributions are made
65/60
62
From 2014
67
Phases beginning in 2013 and
becoming fully effective in 2025
Flexible, with built-in incentives to
remain active in the labour market
65/68 Men: rise gradually from 65 to 68
between 2024 to 2046, Women:
rise gradually from 60 to 65 over
ten years from 2010
Source: “The 2009 Ageing Report” (European Commission) and various media sources
*Statutory refers to the legal age at which benefits can be claimed.
29
Economics
Europe
21 June 2010
abc
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Sun Junwei
Associate

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