Timothy F. Geithner, que já ocupou o cargo de Secretário do Tesouro dos Estados Unidos, e o professor Andrew Metrick investigam as causas, os eventos, as respostas em termos de políticas e as consequências da recente crise financeira global.
Lecture: Ireland and Iceland Revisited, Part II
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Do curso por Yale University
A Crise Financeira Global
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Andrew MetrickMichael H. Jordan Professor of Finance and Management
Yale School of Management
Timothy GeithnerLecturer in Management, Yale SOM, Former U.S. Secretary of the Treasury
Yale School of Management
[MUSIC]
We turn next to the details of what the governments were able to do,
what happened to the governments in the aftermath of the crisis.
In Iceland and Ireland leading up to the global financial crisis,
both countries are in surplus.
This is a very important point, a lot of the discussion about
the sovereign debt component of the Eurozone crisis, talks about
the the countries as though they are all the same and they are all very profitable.
That's simply not true, there are many countries within the Euro zone that were
running surpluses leading up to what later became a crisis.
Ireland and Iceland are two examples of that.
Ireland running a primary surplus in the years leading up to to the crisis and
Iceland running an even larger one, at nearly 5% of GDP,
approximately 5% of GDP in each of the years, 2005, 2006 and 2007.
Starting in 2008, we see that both the Icelandic and Irish
governments took very large hits and there was a fair amount of deficit spending that
was necessary and that the governments themselves were under pressure.
So we see in 2008 and 2009, both Iceland and
Ireland have significant budget deficits.
In 2010, just as Ireland's worst part of the crisis is happening for
Ireland, they are running more than a 30% government budget deficit.
This is what led them to require and ask for
the large 85 billion Euro bailout that they received in November of 2010.
They're forced through the rules of that bailout to have to do the very best
they can to reduce their deficit in future years.
And we see them attempting to do that.
But nevertheless, despite all of the pressure that they were under for
austerity policies, simply wasn't possible for
them to be able to balance their budget over the next three years.
They're trying very hard to balance their budget and they can't,
because of the difficulties that they face from the weak economic conditions.
Iceland, which has the flexibility and
correctly does some deficit spending in order to help the economy recover,
doesn't need to do anywhere near the level of deficit spending that
Ireland is forced to do simply because of their economic weakness.
We move next to the unemployment rate, perhaps a more visceral way
to see the economic weakness than just focusing on gross domestic product.
Once again in the three years leading up to the crisis, 2005,
6 and 7, we see that Ireland and Iceland both have fairly low unemployment rates.
Recall that Europe in general typically has higher unemployment rates,
just in normal times, than we'd see in the United States.
Economists made a variety of reasons for that, but
we don't think these are significant problems.
Ireland and Iceland are actually pretty low.
Ireland is just over 4%.
That would even be low in the United States.
And Iceland is just about 2%.
In 2008, the unemployment rates in both countries begin to rise,
and from 2008 to 2010, they're rising
about the same in both of those countries at approximately the same rate.
Following 2010, however, just as the impact
of the double dipper session was seen on GDP, we see it on the employment rate.
In Ireland that rate continues to increase, increasing into 2011 and 2012,
until it stands at about 14%.
In Iceland, the unemployment rate recovers after 2010.
Dropping from just under 8% to just under 6% by 2013.
Finally we look at the inflation rate.
You'll recall from an earlier discussion, when we talked in an earlier lesson in
this module about what it means to be an optimal currency area, we talked about how
if you don't have labor mobility, and if you don't have fiscal federalism,
the only way that you can actually get an adjustment is by having deflation.
And that's exactly what we see in Ireland.
So Ireland, leading up to the years of the global financial crisis,
has the same inflation as you would see in the rest of the euro zone.
And they're just moving along with that level of inflation.
Now what we see by 2009 and 2010 is actually negative inflation or
deflation, something that is extremely rare with fiat non-metallic money.
So everybody now in Ireland who borrowed to buy a house during the boom period,
is now facing the same mortgage that they had before, but lower on average wages.
In Iceland on the other hand, they devalued their currency.
When you devalue your currency, everything that you import, and
in Iceland, being a small country, doesn't make everything that it consumes.
Everything that you import is now going to cost more in your local currency
than it did before.
This is a one time attempt to say we're going to cut the value of our currency,
so now we used to perhaps be able to buy
1 Euro with 10 unit of our currency
Now it requires us 12 or 13 units of our currency to buy one Euro.
Anyone who's in that kind of a situation means they, themselves,
are gonna have to pay more in their currency to get anything
that they've imported from a place where that is produced paying in Euros.
That's going to cause inflation, and
the inflation rate in Iceland jumps up in 2008 and 2009.
But that inflation rate subsequently makes all Icelandic goods and
services more competitive when sold abroad.
So if it used to be, just as the prices of imports go up,
I'm now going to import less, and the price of my exports now goes down, because
producing them in my country, paying my wages, which are going to have a lower
value relative to the Euro, is going to make it easier for me to sell abroad.
That simple type of adjustment, which makes it easier to export, and
makes it more expensive to import,
shows up in the inflation statistics that you can see in this picture,
are exactly what it takes for a country to be able to restore competitiveness.
The alternative is to just instead of deciding to pay everybody less
all at once, to slowly grind down everybody's wages and
prices until you become competitive, which runs into the problems of exactly what
we've talked about with regards to the debt that exists in that country.
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