since the financial crisis has been disappointing. lately, however, there have been clear signs of a broad economic recovery. recent figures show a sound gdp growth of 0. 6 % for the second quarter of 2017. unemployment stood at 9. 1 % in july, well down from its peak of 12. 1 % in 2013. moreover, both the imf and the ecb staff have recently upped their growth expectations for the 1 / 6 bis central bankers'speeches euro area. 1 at the same time, the healthy upswing of the german economy is continuing : 2017 will be the fourth consecutive year of gdpgrowth outpacing potential output. growth has gained further momentum and the upswing has become more broadly based. thus far, the major drivers have been consumption and housing investment. recently, industrial activity, exports and business investment have also made significant contributions to growth. looking ahead, the very high level of confidence among firms and households suggests that the upswing will continue not only into the second quarter of 2017, but also beyond. a very positive effect of the economic upswing has been the substantial reduction in unemployment. 3. … but not yet good with regard to the euro area as a whole, however, a recent study has shown that the labour market is in worse shape than the official job figures suggest, with workers unlikely to see real increases in pay because of the level of underemployment. 2 a measure of “ slack ” in the labour market indicates that about 15 % to 18 % of the euro area workforce are without jobs or would like to work more – which is nearly double the official unemployment rate. underemployment is even growing further in weaker labour markets, such as those in france and italy. the still weak labour market in many regions of the euro area is one of the most severe ongoing repercussions of the recent financial crisis and an indication that the recovery is not yet strong enough. this is particularly true with respect to the high level of underemployment among young people and in peripheral regions. thus, while the euro area economy looks increasingly healthy on average, it becomes clear on closer inspection that a lot still remains to be done to move onto a sustainable, integrative path of prosperity. this is also one of the reasons why populist extremists are still making electoral gains. 4. the political landscape : more populism in sight? when we look at the german general election five weeks ago, however,

2005b ) “ a global perspective on external positions ”, imf mimeo, july 2005. engel c. rogers j. ( 2006 ) “ the u. s. current account deficit and the expected share of world output ”, nber working paper 11921, january 2006 ; hausmann r., sturzeneger ( 2005 ) “ global imbalances or bad accounting? the missing dark matter in the wealth of nations ”, harvard university working paper, december 2005. caballero r. ( 2006 ) “ on the macroeconomics of asset shortages ”, nber working paper no. 12753, december 2006. rajan r. ( 2006 ) “ is there a global shortage of fixed assets? ”, remarks by raghuram g. rajan, economic counselor and director of research, imf at the g - 30 meetings in new york, december 1, 2006. states that there is a shortage of supply of assets – particularly in emerging markets – relative to demand for these assets. problem lies in underdevelopment of financial markets in emerging economies amid various macro - and microeconomic deficiencies. no single hypothesis is able to explain global imbalances well. i do have a consistent story explaining the sequence of events that led to development of the global imbalances. i will not present it here, those interested may take a look at my blog www. rybinski. eu 15. today i will present two opposing views of what could be the implications of global imbalances for emerging markets : i call them the calvo view 16 and the caballero view 17. calvo view : soft landing in the us and sudden stops in some emerging markets • if em central banks stop buying dollars and ust, they will at the same time stop issuing bonds in domestic currencies which are used to sterilize money markets. it will not imply a change in total world debt level, but a change in the total world debt composition. if bonds are highly substitutable ( as might be in the case of ust and jgb ) then if japan were to stop buying us debt instruments the effect on us rates would be minimal. pboc cannot stop buying foreign debt instruments as it would imply very big appreciation of renminbi, it can change the currency structure of its reserve holdings. this would force a change in composition of debt in hands of private investors and the impact on us rate would be small again. •