Self-defeating austerity?
Holland, Dawn ; Portes, Jonathan
Introduction
Government budget deficits rose sharply in almost all major
industrialised countries in the aftermath of the global financial
crisis. The associated Great Recession led to a sharp and prolonged fall
in output which, together with fiscal stimulus packages and emergency
financial sector support, transformed public finances, resulting in very
large fiscal deficits and a sharp rise in government debt. This raised
concerns about long-term fiscal sustainability and, in some Euro area
countries, possible (and in the case of Greece, actual) default. As a
result, most major economies have introduced fiscal consolidation
packages, with the stated objectives of improving debt sustainability by
lowering debt to output ratios.
However, while it is generally agreed that over the medium term
fiscal consolidation is necessary for many--perhaps most--industrialised
countries, there is considerable debate about whether the speed and
magnitude of consolidation packages could, in practice, be
self-defeating. Fiscal consolidation is likely to have a negative impact
on growth; that in turn reduces tax receipts and may increase spending
pressures. And, as we discuss below, there are good reasons to believe
that, with interest rates at or near the zero lower bound, an impaired
financial system and coordinated action by many governments, the impact
is likely to be significantly larger now than in 'normal'
economic times.
Some economists (for example, Delong and Summers, 2012) have argued
that for at least some countries austerity could be
'self-defeating'; that is, that debt to output ratios might
increase rather than decrease. For EU countries, this argument is
strengthened by spillover effects; reduced growth in one country will
also reduce growth in other countries, through trade linkages. While
each country's fiscal consolidation could make sense in isolation,
the impact of joint consolidation across the Euro zone could worsen the
debt position. This would be a policy coordination failure of the sort
John Maynard Keynes warned about in the last period of a Great
Recession. (1)
This paper uses the National Institute Global Econometric Model,
NiGEM (2) to assess the economic impact of fiscal consolidation plans
for the period 2011-13. We examine the impact both in 'normal
times' and under alternative scenarios where, as now, the interest
rate channel is impaired and liquidity constraints are heightened. We
also explicitly take account of spillover effects.
The main conclusion is that, while in 'normal times',
fiscal consolidation would lead to a fall in debt to GDP ratios, in
current circumstances this is likely to be 'self-defeating'
for the EU collectively. That is, with the fiscal consolidation plans
currently in place, debt ratios will be higher in 2013 in the EU as a
whole rather than lower. This will also be true in almost all individual
member states (including the UK, but with the exception of Ireland). The
implication is that the current strategy being pursued by individual
Member States, as well as the EU as a whole, is fundamentally flawed.
Even on its own terms, it is making matters worse.
Fiscal multipliers
The fiscal impact multiplier is generally defined as the expected
impact on output in the first year of a policy innovation that raises
spending or cuts taxes by 1 per cent of ex ante GDP (Spilimbergo et al.,
2009). Since the crisis, there has been considerable controversy about
the likely magnitude, and indeed sign, of fiscal multipliers in
industrialised countries. Some have argued that confidence and Ricardian
equivalence effects could even lead to multipliers that were negative
(that is, that fiscal consolidation would increase rather than reduce
growth: see Alesina and Ardegna, 2009). Policymakers and the
international institutions, however, have been sceptical about such
claims, and have tended to assume multipliers that were between 0 and 1;
IMF (2010) concluded that on average multipliers were about 0.5.
Meanwhile, others (Fatas, 2012) have consistently argued that
multipliers are in fact likely to be considerably larger.
The recent poor growth experience of many industrialised
countries--in particular those that have undertaken large fiscal
consolidations--has prompted the IMF to move towards the latter position
(IMF, 2012a), concluding that "multipliers have actually been in
the 0.9 to 1.7 range since the Great Recession. This finding is
consistent with research suggesting that in today's environment of
substantial economic slack, monetary policy constrained by the zero
lower bound, and synchronized fiscal adjustment across numerous
economies, multipliers may be well above 1".
Considerable controversy remains (see Giles, 2012, for a discussion
in the UK context). However, there is general consensus on both
theoretical and empirical grounds that, as Barrell et al. (2009)
demonstrate, multipliers are time and state dependent. Fiscal
multipliers differ across countries and over time because the structure,
circumstances and behaviour of economic agents differ. They also differ
within countries, depending on factors such as the fiscal instrument
used and the wider policy response. Thus there is no single
'multiplier'. Moreover, since countries are connected through
trade and capital flows, there are spillover effects; fiscal
consolidation in country A will impact on GDP in country B, and vice
versa.
Multipliers in 'normal' times
In order to establish a baseline estimate of fiscal multipliers in
a cross-country comparative context, we first run a series of scenarios
under a set of common assumptions. We compare the impact of two fiscal
instruments--a cut in government consumption spending and a rise in
personal sector income tax. (3) The transmission channels of fiscal
policy are assumed to operate as they would under 'normal'
equilibrium conditions.
Table 1 reports the estimates of the first year multipliers for
twelve EU countries, for a 1 per cent (ex ante) GDP rise in taxes or cut
in spending that is reversed after two years. We include the US as a
comparator. Simulations are run one country at a time, so there are no
spillovers across countries in this preliminary set of baseline
multipliers. Fiscal multipliers tend to be less than 1, similar to
previous estimates, primarily due to import leakages, the anticipated
monetary policy response, and an offset through the consumption channel
through savings. Generally multipliers peak in the first year and then
decline, and the ex post improvement in government revenues will
normally be less than 1 per cent of GDP, as tax bases change.
What influences the size of the multiplier?
Multipliers tend to be smaller in more open economies, because the
more open an economy is, the more of a shock will spread into other
countries through imports, and small open economies such as Ireland have
small multipliers. Another factor is the degree of dependence of
consumption on current income. This is often related to liquidity
constraints, with a higher current income elasticity more common in
financially unliberalised economies, such as Greece, than in Belgium or
the United States. The degree of liquidity constraints in the economy is
likely to vary over the cycle, and may be particularly heightened when
the banking system is impaired. The extent of credit impairment is
notoriously difficult to measure (due to credit rationing rather than
just a higher cost of credit) but can result in liquidity constraints
for even profitable businesses. (4) We explore the sensitivity of the
multiplier to a parameter designed to capture liquidity constraints
below. Finally the speed of response of the economy depends in part on
the flexibility of the labour market and the speed at which policies
feed into prices.
Table 2 compares the temporary government consumption spending and
direct tax multipliers from table 1 to some of the key factors
determining the differences in the magnitude of multipliers across
countries: import penetration (measured as the volume of imports of
goods and services in 2005 as a share of GDP) and the estimated
short-term income elasticity of consumption. At the bottom of the table
the correlations between each factor and the two multipliers are
reported.
Multipliers in a 'depression'
So far, our results are broadly in line with the previous
literature and the estimates used by international institutions and
policymakers to inform policy during the current round of fiscal
consolidations. However, the baseline multipliers reported in table 1
reflect the expected impact of fiscal innovations when introduced during
normal times, when the economy is operating close to its equilibrium.
However, we do not appear to be in normal times but in a prolonged
period of depression, which we define as a period when output is
depressed below its previous peak. As Delong and Summers (2012),
Auerbach and Gorodnichenko (2012), IMF (2012b) and others point out, the
impact of fiscal tightening during a depression may be very different.
There are a number of channels that the differences may feed
through. In this study we consider two of these channels. First, there
is the interest rate response. Under normal circumstances a tightening
in fiscal policy can be expected to be accommodated by a relaxation in
monetary policy. Our baseline fiscal multipliers reflecting the response
in normal times allow an endogenous response in short-term interest
rates. With forward-looking financial markets, the long-term interest
rate, which determines the borrowing costs of firms for investment, is
driven by the expected path of short-term interest rates over a 10-year
forward horizon. As monetary policy loosens, long-term interest rates
fall, stimulating investment and offsetting part of the fiscal
contraction.
However, with interest rates already at exceptionally low levels,
further tightening of fiscal policy is unlikely to result in such an
offsetting monetary policy reaction. The Federal Reserve, and other
major Central Banks, cut interest rates to near zero levels in 2009.
More recently, the Federal Reserve has announced that these
exceptionally low levels of interest rates are expected to remain
warranted until mid-2015, and financial market expectations for the UK
and Euro Area point to a similar interest rate path. While quantitative
easing/ credit easing measures have been introduced, the effects of
these measures are also limited by low interest rates on risk-free
assets. It is unclear whether 'exceptional' monetary easing
measures will eventually translate into easier credit terms when banking
systems remain so heavily impaired by trading book losses and persistent
pressure on loan book assets.
We consider the impact on the first-year fiscal multiplier of a
fiscal innovation introduced during a period like the present, where
there is little scope for downward flexibility in interest rates. This
is compared to the estimated multiplier with full downward flexibility
in interest rates. We use the United Kingdom as an example, but similar
results can be expected in most of the other economies in our sample.
Figure 1 illustrates the impact on GDP of a 1 per cent of GDP
fiscal consolidation enacted through cuts in government spending in the
UK. The figure compares the expected impact under normal conditions when
the interest rate response is endogenously driven by a targeting rule,
to the same consolidation plan in an environment where there is no
downward flexibility of interest rates. The first-year fiscal multiplier
increases from 0.5 to 0.8 when the interest rate channel is impaired.
The impact is also much more prolonged.
Second, during a downturn, when unemployment is high and job
security low, a greater percentage of households and firms are likely to
find themselves liquidity constrained. In the presence of perfect
capital markets and forward-looking consumers with perfect foresight,
households will smooth their consumption path over time, and consumer
spending will be largely invariant to the state of the economy or
temporary fiscal innovations. In the extreme example of Ricardian
equivalence, the fiscal multiplier is effectively zero, as fiscal policy
is simply offset by private sector adjustments to savings behaviour.
[FIGURE 1 OMITTED]
However, at any given time, some fraction of the population is
liquidity constrained; that is, they have little or no access to
borrowing, so that their current spending is largely restrained by their
current income. In the baseline multipliers, we make the assumption that
savings behaviour and the number of liquidity constrained consumers are
as in normal times. However, in a prolonged period of depressed
activity, this is unlikely to be the case.
We next consider the effects of an increase in the share of
consumers that are liquidity constrained. We operationalise this effect
in the NiGEM model through an adjustment to the short-term income
elasticity of consumption. As unemployment rises, a greater share of the
population will be unable to access credit at reasonable rates of
interest--at precisely the moment when they are in need of borrowing to
smooth their consumption path. This means that consumption is likely to
be cyclical, and that this elasticity is likely to be time varying and
dependent on the position in the cycle. Following a banking crisis, the
effects can be expected to be particularly acute, as banks tighten
lending criteria, as discussed by Barrell et al. (2009). This also
suggests that fiscal multipliers are dependent on the state of the
economy--especially tax innovation multipliers--consistent with recent
studies such as Delong and Summers (2012) and Auerbach and Gorodnichenko
(2012).
The estimated impact on GDP of a 1 per cent of GDP rise in taxes in
the UK, under different assumptions on the short-run income elasticity
of consumption, is reported in table 3. With no liquidity constraints,
we would expect a temporary rise in taxes to have essentially no impact
on output, while with no options for borrowing to smooth consumption we
would expect output to decline by 1/2 per cent. This illustrative
example for the UK can be used as a guide for other countries, as to the
sensitivity of multiplier estimates to this key parameter.
The impact of fiscal consolidation 2011-13
We now consider the impact of the actual fiscal programmes
announced and enacted for 2011-13 in the EU. Table 4 reports the planned
fiscal consolidation programmes in the countries covered in this paper
for 2011-13. The policy impulse is defined as the expected impact of
legislative changes to tax rates and spending commitments introduced in
a given year on total government spending or revenue, as a per cent of
ex ante GDP. A negative impulse represents contractionary policy (a tax
increase or spending cut).
Fiscal policy became contractionary in all countries in our sample
in 2011, with the deepest consolidation measures introduced in Portugal,
Ireland and Greece--the three countries on bail-out programmes.
Cumulative measures over the three-year period amount to close to 10 per
cent of GDP in Greece and Portugal and 8 per cent of GDP in Ireland.
Consolidation measures amounting to 5-6 per cent of GDP are planned in
France, Italy, Spain and the UK, while only a modest adjustment is
planned in Germany and Austria.
In order to assess the impact of these planned consolidation
packages on GDP, the deficit and the stock of government debt, we
consider two alternative scenarios. In the first scenario, we implement
the policy plans detailed in table 4, under the assumption that the
economy is behaving as in normal times, eg. with flexible interest rates
that do not bind, and liquidity constraints in line with the long-run
average. In the second scenario, we allow for an impaired interest rate
channel and heightened liquidity constraints --assumptions we consider
more realistic under current conditions. We raise the short-term income
elasticity of consumption by 0.1 in Germany and by 0.4 in Greece, with
proportional adjustments in other countries (these parameters are
calibrated to a measure of financial sector impairment: see Holland,
2012b, for details).
[FIGURE 2 OMITTED]
Table 5 reports the estimated impact of the planned consolidation
programmes in Europe on GDP under the two scenarios. These scenarios
were run with all countries consolidating simultaneously, and so capture
the spillover effects of policies between countries. Figures 2 and 3
illustrate the estimated impact on the fiscal balance and the debt stock
of the programmes in 2013. While the budget balance is expected to
improve in most countries under both scenarios, when liquidity
constraints are heightened and the interest rate channel impaired, the
improvement in the budgetary position is significantly weaker. For
example, in Greece, the 10 per cent of GDP ex-ante consolidation
programme is expected to improve the budget balance by just 2 per cent
of GDP by 2013, as the level of output is expected to contract by 13 per
cent as a result of the programme.
Even more strikingly, in the second scenario the fiscal
consolidation programmes increase rather than reduce the debt-GDP ratio
in every country except Ireland. This seemingly perverse outcome
reflects the relatively modest adjustment to the stock of debt in the
numerator of this ratio compared to the sharp contractions expected in
the level of GDP in the denominator of the ratio. While the level of
debt is expected to decline in most countries, the rate of decline
cannot keep pace with the drop in output, leading to a rise in the
debt--GDP ratio.
It is particularly striking that this is not just true in extreme
cases like Greece; fiscal consolidation across the EU has the effect of
increasing rather than reducing debt--GDP ratios in Germany and the UK
as well. In both the UK and the Euro Area as a whole, the result of
coordinated fiscal consolidation is a rise in the debt-GDP ratio of
approximately 5 percentage points.
[FIGURE 3 OMITTED]
Of course, one argument frequently advanced in support of fiscal
consolidation programmes is that they will reduce government borrowing
premia in countries with high debt and deficits. But these simulations
show that the opposite may in fact be the case; if we were to allow for
endogenous feedback from the government debt ratio to government
borrowing premia, this would in fact raise interest rates, exacerbate
the negative effects on output, and in turn make debt--GDP ratios even
worse; truly a 'death spiral'.
Spillovers
It is important to note that much of the explanation for these
large negative impacts is that output in each country is reduced not
just by fiscal consolidation domestically, but by that in other
countries (through trade linkages). In order to gain insight into the
magnitude of these impacts, we compare the multipliers from the second
scenario to a set of unilateral scenarios based on the same assumptions
of an impaired interest rate channel and heightened liquidity
constraints.
Figure 4 illustrates the difference in the expected level of GDP in
2013 in each country in the joint scenario compared to the unilateral
scenarios. On average, the negative impact of the programmes on the
level of GDP in each country is 2 percentage points greater by 2013 when
policies are enacted jointly rather than unilaterally. Negative
spillovers are more severe in the very open economies, such as Belgium
and the Netherlands, and more muted in the less open economies of
France, Italy and the UK.
[FIGURE 4 OMITTED]
Conclusions
It has been argued that the poor growth performance of most EU
countries (including the UK as well as Euro Area countries) in the past
two years cannot be primarily attributed to fiscal consolidation. This
paper suggests the contrary: when account is taken of the magnified
impact of consolidation in a depressed economy, and of the spillover
effects of coordinated fiscal consolidation across almost all EU
countries, fiscal multipliers will be considerably larger than in normal
times, and the impact on growth correspondingly larger.
The direct implication is that the policies pursued by EU countries
over the recent past have had perverse and damaging effects. Our
simulations suggest that coordinated fiscal consolidation has not only
had a substantially larger negative impact on growth than expected, but
has actually had the effect of raising rather than lowering debt to GDP
ratios, precisely as some critics have argued. Not only would growth
have been higher if such policies had not been pursued, but debt--GDP
ratios would have been lower. It is ironic that, given that the EU was
set up in part to avoid coordination failures in economic policy, it
should deliver the exact opposite.
REFERENCES
Alesina, A.F. and Ardagna, S. (2009), 'Large changes in fiscal
policy: taxes versus spending', NBER Working Paper No. 15438,
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Auerbach, A.J. and Gorodnichenko, Y. (2012), 'Fiscal
multipliers in recession and expansion", American Economic Journal:
Economic Policy, 4(2), pp. 1-27.
Bagaria, N., Holland, D. and Van Reenen, J. (2012), 'Fiscal
consolidation during a depression', National Institute Economic
Review, 221, pp. F42-54.
Barrell, R., Fic, T. and Liadze, I. (2009), 'Fiscal policy
effectiveness in the banking crisis', National Institute Economic
Review, 207.
Barrell, R., Holland, D. and Hurst, A.I. (2012), 'Fiscal
consolidation Part 2: fiscal multipliers and fiscal
consolidations', OECD Economics Department Working Paper No. 933
DeLong, J.B. and Summers, L.H. (2012), 'Fiscal policy in a
depressed economy', Brookings Papers on Economic Activity 2012.
Euroframe (2012), 'Economic Assessment of the Euro Area',
winter 2011/12.
Fatas, A. (2012), 'Underestimating fiscal policy
multipliers', blogpost, October.
Giles, C. (2012), Financial Times, October.
Holland, D. (2012a), 'Less austerity, more growth ?',
paper prepared for ENEPRI Conference: EU Growth Prospects in the Shadow
of the Crisis.
--(2012b), 'Reassessing productive capacity in the United
States', National Institute Economic Review, 220.
IMF (2010), World Economic Outlook, October.
--(2012a),World Economic Outlook, October.
--(2012b), Fiscal Monitor Update, July.
Keynes, J.M. (1933), The Means to Prosperity, London, Macmillan.
Spilimbergo, A., Symansky, S. and Schindler, M. (2009),
'Fiscal multipliers', IMF Staff Position Note, SPN/09/11.
Stiglitz, J. and Greenwald, B. (2003), Towards a New Paradigm in
Monetary Economics, Cambridge, Cambridge University Press.
Dawn Holland and Jonathan Portes *
* National Institute of Economic and Social Research. e-mail:
[email protected]. This Commentary is a shorter version of Holland
(2012a), which contains a fuller and more technical explanation of the
modelling techniques used. It also draws heavily on two previous papers:
Barrell et al. (2012) and Bagaria et al. (2012). We would like to
acknowledge the significant contributions of our co-authors from both
papers to this work. However, any errors in this current version of the
paper are of course our own.
NOTES
(1) "It is as though two motor-drivers, meeting in the middle
of a highway, were unable to pass one another because neither knows the
rule of the road. Their own muscles are no use; a motor engineer cannot
help them; a better road would not serve. Nothing is required and
nothing will avail, except a little, a very little, clear thinking ...
they will never get by, unless they stop to think and work out with the
driver opposite a small device by which each moves simultaneously a
little to his left." (From Keynes, J.M., 1933.)
(2) For a full description of NiGEM see http://nimodel.niesr.ac.uk.
(3) For a comparison with multipliers using other fiscal
instruments in NiGEM see Barrell et al. (2012).
(4) See Stiglitz and Greenwald (2003).
Table 1. Fiscal impact multipliers
Government consumption Income tax
Austria -0.52 -0.13
Belgium -0.62 -0.12
Finland -0.61 -0.06
France -0.67 -0.27
Germany -0.48 -0.26
Greece -1.35 -0.53
Ireland -0.36 -0.08
Italy -0.63 -0.13
Netherlands -0.59 -0.20
Portugal -0.73 -0.11
Spain -0.81 -0.11
United Kingdom -0.54 -0.09
United States -0.92 -0.19
Note: Impact on GDP in the first year of a 1 per cent of ex-ante
GDP temporary cut in government consumption or rise in income
tax. No shift in the budget target. Experiments conducted in one
country at a time.
Table 2. Key factors determining cross-country
differences in multipliers
Temporary Temporary Import Income
spending income tax penetration elasticity
multiplier multiplier
Austria -0.52 -0.13 0.50 0.23
Belgium -0.62 -0.12 0.80 0.17
Finland -0.61 -0.06 0.39 0.00
France -0.67 -0.27 0.30 0.51
Germany -0.48 -0.26 0.39 0.68
Greece -1.35 -0.53 0.34 0.48
Ireland -0.36 -0.08 0.72 0.17
Italy -0.63 -0.13 0.27 0.14
Netherlands -0.59 -0.20 0.70 0.23
Portugal -0.73 -0.11 0.38 0.08
Spain -0.81 -0.11 0.37 0.00
UK -0.54 -0.09 0.29 0.17
US -0.92 -0.19 0.16 0.15
Spending correlation 0.43 -0.12
Tax correlation 0.22 -0.73
Note: Consumption and direct tax multipliers from table I. Import
penetration is measured as the volume of goods and services
imports as a share of GDP in 2005. Income elasticity is the
estimated response of consumption to current changes in income,
from the consumption equations in NiGEM.
Table 3. Impact of consolidation programme (tax rise) on
UK GDP, under different short-term income elasticities of
consumption
Model Short-run income First year multiplier
elasticity of
consumption
I 0.0 -0.01
2 0.1 -0.06
3 0.2 -0.11
4 0.3 -0.15
5 0.4 -0.20
6 0.5 -0.25
7 0.6 -0.31
8 0.7 -0.36
9 0.8 -0.41
10 0.9 -0.47
11 1.0 -0.52
Table 4. Ex-ante net fiscal impulses 2011-2013, as announced by
governments
2011
Fiscal impulse of which of which
(% of 2011 tax spending
GDP) based based
Austria -0.9 -0.4 -0.5
Belgium -0.7 0.0 -0.7
Finland -0.3 -0.3 -0.1
France -1.4 -1.1 -0.3
Germany -0.5 -0.2 -0.3
Greece -2.7 -1.2 -1.5
Ireland -3.4 -0.9 -2.5
Italy -0.5 -0.3 -0.2
Netherlands -0.8 -0.3 -0.5
Portugal -5.9 -2.7 -3.2
Spain -2.5 -0.5 -2.0
UK -2.1 -1.1 -I.0
2012
Fiscal impulse of which of which
(% of 2011 tax spending
GDP) based based
Austria -0.4 -0.2 -0.3
Belgium -1.2 -0.5 -0.7
Finland -0.6 -0.5 -0.1
France -1.7 -1.1 -0.6
Germany -0.2 0.0 -0.2
Greece -5.1 -3.5 -1.6
Ireland -2.4 -1.0 -1.4
Italy -3.0 -2.4 -0.6
Netherlands -0.6 -0.5 -0.1
Portugal -2.1 0.0 -2.1
Spain -2.1 -0.4 -1.7
UK -1.8 -0.2 -1.6
2013
Fiscal impulse of which of which
(% of 2011 tax spending
GDP) based based
Austria -0.1 0.0 -0.1
Belgium -1.3 -0.4 -0.9
Finland -0.1 -0.1 0.0
France -1.7 -0.8 -0.8
Germany -0.1 -0.1 0.0
Greece -2.0 -0.9 -1.1
Ireland -2.1 0.7 -1.4
Italy -1.5 -0.6 -0.9
Netherlands -0.6 -0.5 -0.2
Portugal -1.9 -0.5 -1.4
Spain -1.4 -0.3 -1.1
UK -I.0 0.0 -1.0
Source: Euroframe (2012). Does not include fiscal plans introduced
after January 2012.
Note: Here we define the fiscal impulse as the ex-ante expected change
in revenue/spending as a % of 2011 GDP as a result of announced
policy changes. The impact on GDP will depend on the fiscal
multipliers in each country, and cannot be read directly from this
table. The ex-post impact on government balances will depend on the
response of GDP, and so also cannot be read directly from this table.
Table 5. Impact of consolidation programmes on the level of GDP
Percentage difference from base
2011 2012
Scenario 1 Scenario 2 Scenario 1 Scenario 2
Austria -0.2 -1.0 -0.2 -2.1
Belgium -0.6 -2.2 -0.7 -4.3
Finland 0.0 -0.9 0.1 -1.8
France -0.5 -1.4 -1.1 -2.9
Germany -0.1 -1.0 0.0 -1.9
Greece -2.4 -4.6 -6.7 -13.0
Ireland -0.9 -1.2 -1.3 -3.1
Italy 0.0 -0.7 -0.7 -2.6
Netherlands -0.6 -1.9 -0.7 -3.3
Portugal -3.2 -4.4 -5.9 -7.8
Spain -1.7 -2.5 -3.2 -5.3
UK -0.5 -2.2 -1.2 -4.3
Euro Area -0.5 -1.5 -1.0 -3.1
2013
Scenario 1 Scenario 2
Austria -0.3 -2.9
Belgium -1.6 -5.2
Finland -0.1 -2.2
France -2.0 -4.0
Germany -0.1 -2.2
Greece -8.1 -13.2
Ireland -2.3 -5.0
Italy -1.9 -4.1
Netherlands -1.1 -3.9
Portugal -7.7 -9.7
Spain -4.2 -6.7
UK -1.8 -5.0
Euro Area -1.7 -4.0
Note: Scenario I reflects expected impact were the economies operating
near equilibrium. Scenario 2 allows for heightened liquidity
constraints and impaired interest rate adjustment.
