Can Europe recover without credit?
AbstractData from 135 countries covering five decades suggests that creditless recoveries, in which the stock of real credit does not return to the pre-crisis level for three years after the GDP trough, are not rare and are characterised by remarkable real GDP growth rates: 4.7 percent per year in middle-income countries and 3.2 percent per year in high-income countries. However, the implications of these historical episodes for the current European situation are limited, for two main reasons. First, creditless recoveries are much less common in high-income countries, than in low-income countries which are financially undeveloped. European economies heavily depend on bank loans and research suggests that loan supply played a major role in the recent weak credit performance of Europe. There are reasons to believe that, despite various efforts, normal lending has not yet been restored. Limited loan supply could be disruptive for the European economic recovery and there has been only a minor substitution of bank loans with debt securities. Second, creditless recoveries were associated with significant real exchange rate depreciation, which has hardly occurred so far in most of Europe. This stylised fact suggests that it might be difficult to re-establish economic growth in the absence of sizeable real exchange rate depreciation, if credit growth does not return.
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Bibliographic InfoPaper provided by Corvinus University of Budapest in its series Corvinus Economics Working Papers (CEWP) with number 1605.
Date of creation: 2014
Date of revision:
creditless recovery; credit growth financial structure; real exchange rate adjustment;
Other versions of this item:
- Zsolt Darvas, 2013. "Can Europe recover without credit?," IEHAS Discussion Papers 1318, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
- Zsolt Darvas, 2013. "Can Europe Recover Without Credit?," Working Papers 1303, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
- Zsolt Darvas, 2013. "Can Europe recover without credit?," Policy Contributions 770, Bruegel.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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