...Cyprus Since the financial crisis of 2007/2008 in the United States, there has been a worldwide domino effect resulting in negative consequences for the economies of a number of countries. The Dominion of Cyprus remained relatively unscathed immediately preceding this economic downturn with a contraction of the economy as result of decreased tourism. In 2011, however, as a result of haircuts upwards of 50% on the Greek bonds that Cypriot banks had heavily invested in, Cyprus was no longer able to support its financial sector and was forced to seek a bailout from the European Union. The proposed bailout plan for Cyprus was not only unexpected, but an action that had never before been done in the history of banking crises. This controversial “bail-in” plan has many serious implications for state of financial markets worldwide. The European Union agreed upon a bail-in plan in which bank deposits would be used to support the struggling Cypriot banks. Specifically, a levy of 9.9% on the savings of depositors with balances over 100,000, and 6.75% on depositors under 100,000 will be paid in return for equity in the banks. Nearly 6 billion euros would be saved from the European taxpayers while Cypriot government figured they could just “spread the pain” resulting in nearly 7% payments from the insured depositors. With this plan to pass, depositors not only in the European union, but around world would now fear the risk of a breach in the explicit promise that they can be...
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...number of countries have found themselves needing a bail out of some sort. From the PIGS of Europe to South Asia and Africa. What all these countries have/had in common was the need for funds to facilitate a bailout of their faltering economies especially the banking sector. Like the countries that need a bail LDC always need money to finance their debt and pay off any interest especially in time of uncertainty. The purpose of this paper is to present a way for such countries to meet their financial needs and to protect their banking sectors. Unlike businesses or corporations, countries have access to natural resources which can be got and sold on the world market for a profit. Some countries even have an immediate market for their minerals like oil and gold. Almost all LDCs and a number of the other countries that needed bail out funds, have these resources that can be sold for profit. However in a situation where quick funds are needed, selling these resources would take a considerably long period of time which is not available at that instance. This can be remedied by the sell of long term covered call options on the resources of the different countries that need the funds. An options strategy is when an investor holds a long position (owns the asset: in our case mineral) in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This strategy is often employed when an investor has a short-term neutral view...
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...sidestepping best practice and ignoring internationally agreed standards.[9] This allowed the sovereigns to mask (or "Enronize") their deficit and debt levels through a combination of techniques, including inconsistent accounting, off-balance-sheet transactions as well as the use of complex currency and credit derivatives structures.[9] From late 2009, fears of a sovereign debt crisis developed among investors as a result of the rising private and government debt levels around the world together with a wave of downgrading of government debt in some European states. Causes of the crisis varied by country. In several countries, private debts arising from a property bubble were transferred to sovereign debt as a result of banking system bailouts and...
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...The European Debt Crisis In 2009, Greece came forward and announced that their financial management of their economy had gone awry. Greece's revealed their budget to be 12.7 percent of gross domestic product (GDP), in addition, its debt-to-GDP ratio at 120% was twice the limit allowed in the Maastricht treaty. This triggered what is now known as the European Debt Crisis, and led to similar announcements by Portugal, Italy, Ireland, Spain and most recently Cyprus. In the next pages we will attempt to explain the events leading up to the crisis and potential next steps for the European community. On February 7th, 1992 the 13 member nations of the European Council came together to sign the Maastricht Treaty. The treaty was designed to create financial stability throughout the Euro Zone by laying out fundamental fiscal policies for each country to follow. The treaty primarily encompasses four points: 1. Inflation rates: No more than 1.5 percentage points higher than the average of the three best performing (lowest inflation) member states of the European Union (EU). 2. Government finance: Annual government deficit: The ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3% at the end of the preceding fiscal year. Government debt: The ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year. 3. Exchange rate: Applicant countries should have joined the exchange-rate mechanism (ERM II) under the...
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...AUGUST 26, 2011 ------------------------------------------------- Questions and Answers on the Eurobond - Full analysis |More Services | Eurobonds are essential to save the euro, yet a flawed structure will produce adverse effects. We must see what needs to be done, what to be avoided. | In explaining the new order of things in the systemic crisis of the euro I concluded saying that a series of structural reforms in the architecture of the euro need to take place. Among them was/is the introduction of the eurobond. The eurobond is quite a vague and broad concept since it has never taken material form before. It therefore creates a number of questions as to its form, the body responsible for its issuance, the relations between it and the states, the sovereign debt of euro countries and whether it will be mutualized, what are the dangers etc. All these arguments are legitimate and bear a certain truth in them, yet without putting everything into context we can never reach a verdict and decide whether to adopt or reject the option of the Eurobond. In my discussions with my readers and with other Europeans, as well as in my research across the Internet and the European blogosphere, I have gathered a number of common questions that are raised. I shall attempt to provide answers to these questions in order decide whether eurobonds are the only way out of this dead-end that Europe has reached. (To view a concrete proposal for saving the euro, within the current institutional...
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...The International Monetary Fund The International Monetary Fund is an international organization that provides financial assistance and advice to member countries. This article will discuss the main functions of the organization, which has become an enduring institution integral to the creation of financial markets worldwide and to the growth of developing countries. History: The International Monetary Fund was originally laid out as a part of the Bretton Woods system exchange agreement in 1944. During the earlier Great Depression, countries sharply raised barriers to foreign trade in an attempt to improve their failing economies. This led to the devaluation of national currencies and a decline in world trade. This breakdown in international monetary co-operation created a need for oversight. The representatives of 45 governments met at the Bretton Woods Conference in the Mount Washington Hotel in the area of Bretton Woods, New Hampshire in the United States, to discuss framework for post-World War II international economic co-operation. The participating countries were concerned with the rebuilding of Europe and the global economic system after the war. There were two views on the role the IMF should assume as a global economic institution. British economist John Maynard Keynes imagined that the IMF would be a cooperative fund upon which member states could draw to maintain economic activity and employment through periodic crises. This view suggested an IMF that helped...
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...Lyn Klein Economics for Global Managers Professor Victoria Vernon Module 3 Case Study: European Union 7/3/14 The EU is facing a banking crisis. There are insolvent banks in Ireland and Spain, as well as other nations. They lent out too much money, often against real estate. There were real estate bubbles then the value of real estate fell and borrowers could not always pay back the loans. The Greek banking crisis was caused by the government spending too much and borrowing too much money. The economy collapsed causing the banks to be insolvent. Before the collapse banking was conservative. When a nation has insolvent banks belonging to the Euro zone make that problem much worse. There were silent funs on Greek banks, with capital flight; people are pulling their money out of the Greek banks and sending it elsewhere, making the Greek economy worse. The common currency zone escalates the problems. There are also capital and trade imbalances. Germany is exporting a great deal more than it imports, causing capital flows into Germany. Spain and Greece import more than they export so capital flow is out of the country. They need to become more productive at exporting, which is not always easy. In the 2000’s money flowed into periphery countries, borrowing rates were low and capital inflow brought rising standards of living. By 2010’s money was flowing out of the periphery countries and back into Northern Europe. Periphery economies were starved for investment...
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...SBI PO Exam Special Current Affair Supplement Latest Developments in Banking and Financial Sector Latest questions pertaining to Governance, Policies, Panels and Committees Miscellaneous Current Affairs (Very Important for upcoming competitive exams) A publication of Nirdeshak.com Latest Developments in Banking & Financial Sector 01 SBI PO Exam - Special Current Affair Supplement 1) India implemented Basel III norms, which comprises of new global capital rules for banks, from which date? – 1 April 2013 (Under Basel III norms, Indian banks will have to hold core capital of at least seven percent of risk-weighted assets) 2) What is the name of the bill passed by the Lok Sabha on 18 December 2012, which seeks to strengthen banking regulations in the country? – Banking Laws (Amendment) Bill 2011 (This bill seeks to raise voting rights of investors in private sector banks to 26 per cent from present 10 per cent and also allows RBI to supersede boards of private sector banks to increase the cap on their voting rights to 10 per cent from 1 per cent 3) Financial sector regulators – The Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA) and Pension Fund Regulatory and Development Authority (PFRDA), on 8 March 2013 joined hands by signing an agreement under the auspices of the Financial Stability and Development Council (FSDC). What are the main objectives of this move? – These regulators would...
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... THE TIPPING POINT ........................................................................................................... 3 IMPACT OF BANKING CRISIS ON EU - DEVELOPMENT OF FISCAL CRISIS .............. 4 WHAT HAPPENED IN GREECE............................................................................................. 4 DEBT IS HER OLDEST COMPANION ............................................................................... 5 CRISIS HAS SHOWN FIRST EFFECTS.............................................................................. 5 HOW MARKETS SAW GREECE ........................................................................................ 6 GREECE'S PROBLEMS SINCE THE CRISIS HAS ARISEN and BAILOUTS ..................... 7 The huge numbers of Greece's debt in pictures (2012) ...................................................... 9 A FEW WORDS ABOUT GREECE'S RATIOS ..................................................................... 10 THE GOVERNMENT SPENDINGS .................................................................................. 10 DEBT TO GDP RATIO ....................................................................................................... 10 UN EMPLOYMENT ............................................................................................................ 12 TAX EVASION...
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...stability and reaching the state of collapse of the financial infrastructure in the absence of central bank‟s intervention. Financial collapse which affects most of the companies generates quickly problems over the banking system as the following consequences: the panic of the clients, inability to distinguish between the efficiency and the difficulty of banks, deposit withdrawals. Jack Reed, an American politician mentions: “The financial crisis is a stark reminder that transparency and disclosure are essential in today's marketplace.” In economic literature, the problems in the banking system are the main sources of the financial crises. All the economic collapses require injections of liquidity or public financial funds, in some cases, private funds from banks and international institutions. Financial crises have usually as a consequence the unemployment because labor markets are globally rigid, the currency is in devaluation, and people usually enter into a "forced leave". Therefore, the most important crises that marked the population at an individual and global level, in a top of seven, were: the Great Depression during 1929-1939, German Hyperinflation between 1918 and 1924, the Great Recession in...
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...GREEK ECONOMIC CRISIS: CAUSES & EFFECTS Objective: To study the factors that lead to the Greek Economic Crisis and its effects on other other countries including India. A. IMPORTANCE Greece is normally known for mythology and coliseums, but for the past year, and probably well in to the future, Greece is making headlines for less mythical reasons. Greece has earned the reputation of being that family member who can't seem to get out of money trouble and, in turn, is always asking for a loan. Also, like that same family member, the chances of getting that money back isn't high. Greece is on the brink of bankruptcy and many economists believe that they are already bankrupt. Greece's debt has reached 160% of their gross domestic product. When debt reaches 100% of gross domestic product, it is cause for major concern. What's worse, they don't have the capacity to do much about it. Greece can't artificially change the buying power of their currency because they are part of the eurozone, and they can't easily raise taxes because they don't have an efficient or well-developed system of collecting taxes. If all of that isn't enough, the citizens of Greece are growing increasingly upset with their government, which is causing political turmoil as well as economic. Greece owes so much money to other countries that each citizen owes $40,000! 1. We Live in a Global World The world is no longer a collection of countries, many of which have little effect...
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...The Political Economy of the Greek Debt Crisis: A Tale of Two Bailouts Silvia Ardagna and Francesco Caselli First draft: February 2012; Final version: January 2014 Abstract We review the events that led to the May 2010 and July 2011 bailout agreements. We interpret the bailouts as outcomes of political-economy equilibria. We argue that these equilibria were likely not on the Pareto frontier, and sketch political-economy arguments for why collective policy making in the Euro area may lead to suboptimal outcomes. Most modern sovereign debt crises have been managed in Washington, DC, through the combined e¤orts of the International Monetary Fund (IMF) and the US government. A distinctive feature of the crisis that has engulfed European sovereign-debt markets since the fall of 2009 has been that the IMF has played only a supporting (albeit important) role, while the management of the crisis has been driven by European institutions: the council of …nance ministers (ECOFIN), the European Council (EC, made up by all the heads of government of the European Union) and the European Central Bank (ECB). To the extent that the IMF is largely a technocratic institution (though of course not entirely immune from political in‡ uence) while ECOFIN and the EC are made up of politicians, one may expect the management of the crisis by the EC to be more a¤ected by electoral concerns. Furthermore, since there are 27 members to the EC, representing countries with potentially di¤erent interests, one...
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...Financial Crisis in the European Union: The Cases of Greece and Ireland Sara F. Taylor Thesis submitted to the faculty of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of Master of Arts in Political Science Scott G. Nelson, Chair Karen M. Hult Deborah J. Milly September 7, 2011 Blacksburg, Virginia Keywords: EUROPEAN UNION, EUROZONE, GREECE FINANCIAL CRISIS, IRELAND BANKING CRISIS, EUROPEAN CENTRAL BANK Copyright 2011 Sara F. Taylor Financial Crisis in the European Union: The Cases of Greece and Ireland Sara Frances Taylor ABSTRACT The 2008 eurozone financial crisis has only worsened as of summer 2011 raising questions about the economic future of the eurozone and sending shock waves through economies around the world. Greece was the first state to receive a bailout from the European Union and the International Monetary Fund, surprisingly followed only six months later by Ireland. The goal of this thesis is to analyze the challenges posed to smaller, weaker economies within the eurozone, specifically Greece and Ireland, since the recent eurozone financial crisis. This study is based on the experiences of both Greece and Ireland as very different members of the single currency. How and why did these states meet the criteria for euro convergence? To what extent was there support for the euro in both countries in the past? To what extent is there support today after the near collapse...
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...Index Page No. 1.0 Overview 2 2.0 The Establishment of the Euro Zone and the introduction of the Euro 2 3.0 Key Causes of the European Financial and Economic Crises 3 4.0 The Start and Progression of the European Debt Crisis 5 5.1 Greece 6 5.2 Portugal 6 5.3 Italy 7 5.4 Spain 7 5.5 Ireland 8 5.6 Iceland 9 5.0 Measures Taken (so far) to Combat the Debt Crisis (European Level) 10 6.7 European Financial Stability Facility (EFSF). 10 6.8 European Financial Stabilization Mechanism (EFSM). 10 6.9 ECB interventions. 10 6.10 Brussels Agreement. 11 6.0 Implications of the European Debt Crisis: For the European Union 12 7.0 Implications of the European Debt Crisis: For the Global Economy 13 8.0 Implications of the European Debt Crisis: For Global Politics 14 9.0 Implications of the European Debt Crisis: For Pakistan 15 10.0 Implications of the European Debt Crisis: For the Welfare State 16 11.0 Solutions for the European Debt Crisis 16 12.11 Eurobonds. 16 12.12 Restructuring of Eurozone. 18 1.0 Overview: With a nominal GDP of $16,242 Billion in 2010 (20% of global GDP), the European monetary union is not only the world’s largest economic block, but also the foremost integrated economic and political association of nations in history...
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...European Central Bank’s president, to do “whatever it takes” to save the single currency. The French and the Italians have dodged structural reforms, while the Germans have insisted on too much austerity. Prices are falling in eight European countries. The zone’s overall inflation rate has slipped to 0.3% and may well go into outright decline next year. A region that makes up almost a fifth of world output is marching towards stagnation and deflation. Optimists, both inside and outside Europe, often cite the example of Japan. It fell into deflation in the late-1990s, with unpleasant but not apocalyptic consequences for both itself and the world economy. But the euro zone poses far greater risks. Unlike Japan, the euro zone is not an isolated case: from China to America inflation is worryingly low, and slipping. And, unlike Japan, which has a homogenous, stoic society, the...
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