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敬请阅读末页的重要说明 Report | Macro Analysis Special Report Trilogy of European sovereign debt crisis: what means to save Europe? 26 September 2011 Research on Government Debt-Serial V Key Data USA % 10 11E GDP 2.9 1.6 CPI 1.6 2.6 Unemployment 9.6 9.0 Trade balance/GDP -3.2 -3.4 Fiscal balance/GDP -8.1 -9.2 Policy rate 0.25 0.25 Dollar Index 79.0 77.0 Eurozone % 10 11E GDP 1.8 1.5 CPI 1.58 2.5 Unemployment 10 10 Trade balance/GDP -0.45 -0.50 Fiscal balance/GDP -6.0 -4.6 Policy rate 1 1.50 Dollar Index 1.34 1.30 Source: Bloomberg, China Merchants Securities ? Who is the initiator of the debt crisis?: the success and failure of the affair is all to Euro. After entering the euro area, European periphery economies grew fast, but also accompanied by increased fiscal and current account deficits and increased public debt. High dependence on indebtedness and the relatively weak competitiveness of the real economy are the two main factors attributable to the imminent of the debt crisis. The lack of corporation of fiscal and monetary policy is another leading factor to the formation and the deterioration of the crisis. ? Why the debt crisis intensified?: lack of confidence + political conflicts=the contagion of sovereign debt crisis. If the trigger of the European debt crisis is Greece's sovereign debt problem, and that the crisis spreads to Spain and Italy is driving by the lack of confidence. The factor which led the situation come out of control is still the lack of the corporation of fiscal and monetary policy in euro area, which is essentially a political crisis. ? Why the debt crisis prolonged?:bailout, bailout and bailout. Look at existing solutions from the major European countries and international organizations, it’s all about bailout. The bailout scheme can temporarily stabilize the market, but without timely and efficient execution, the bailouts cannot help much and its marginal influence is decreasing. And also the bailout shcheme does not touch the fundamental problem of the euro area. With even weaker confidence, the financing costs for European countries increase substantially. ? What can save Europe?: define the boundaries of risk, economic restructuring, fiscal union. From the debt crisis in Latin American to Russia's debt crisis, historical experience shows a simple rescue package cannot resolve the debt crisis. Finally, the debt crisis will end with massive currency devaluation and debt default and restructuring. As the contagion of debt crisis is a result of a “confidence crisis”, it is important to stabilize the market confidence at the first. However, over long term, as a healthy economic growth is the fundamental resolution of sovereign debt crises, we think it is necessary for the euro area to adjust the economic structure and also reach a fiscal union. Dr. Wenwen ZHAN 852-31896130 zhanww@cmschina.com.cn Dr. Cliff ZHAO 852-31896126 wenlizhao@cmschina.com.cn Dr. David XIE 86-755-83295524 xieyx@cmschina.com.cn