...REPORTS ON GLOBAL FINANCIAL CRISIS – 9 SESRIC REPORTS ON THE GLOBAL FINANCIAL CRISIS European Debt Crisis and Impacts on Developing Countries STATISTICAL ECONOMIC AND SOCIAL RESEARCH AND TRAINING CENTRE FOR ISLAMIC COUNTRIES (SESRIC) 1 SESRIC REPORTS ON GLOBAL FINANCIAL CRISIS – 9 2011‐2 Issue EUROPEAN DEBT CRISIS AND IMPACTS ON DEVELOPING COUNTRIES July – December 2011 SESRIC Reports on Global Financial Crisis : The financial crisis which started in July 2007, when investors lost their confidence in the mortgage‐ and asset‐based securities in the United States, has deepened during 2008‐2009 with a global reach and affecting a wide range of financial and economic activities and institutions in both developed and developing countries around the world. As the crisis deepened, the governments of major developed and developing countries as well as international financial regulators attempted to take some mitigation actions and coordinate efforts to contain the crisis. Given this state of affairs, the SESRIC has been preparing short reports since May 2009 with the aim of monitoring the developments related to the current global financial crisis at the global, regional and national levels. In particular, these reports focus on the impact of the crisis on the economies of ...
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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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...governments and departments which helped to reduce the bad effects of it. Not a single year has gone by in the past two centuries where there was not a financial crisis somewhere in the world (see figure 1). Arguably, the world witnessed its first international financial crisis in 1825. The opening up of Latin America after the overthrow of the Spanish empire led to the opening up of international trade between England and the Latin American republics. The result was massive capital flows from London to finance infrastructure, mining and government spending. But once the capital outflows impinged on the Bank of England’s (BoE) gold reserves, the policy rate was raised, leading to a banking crisis. A sudden stop of capital flow from London resulted in banking panics in the US and currency crashes across Latin America. Figure 1: The history of financial crises Indeed, the crisis in 1825 marked the first of seven clusters of sovereign defaults in the period 1800 to 2010 In the first cluster of defaults, which happened during 1824-1834, 13 Latin American countries defaulted. The following period (1835–1866) was relatively tranquil. But a lending boom developed in this period, which soon resulted in a new series of default episodes. The global crisis of 1873 started with the collapse of a property boom in Germany and Austria, then spread through the continent and affected the US as European investors dumped...
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...The European sovereign debt crisis Introduction At the beginning of 2010, its emerged that the sovereign debt crisis would drastically spread through the entire European Union since Portugal, Greece, Spain, Italy and Ireland, which are jointly known as the PIIGS were in facing the significant increase in their deficit as well as public debt. The events about the crisis were closely tied to Greece since there were doubts about its ability to offset the huge sovereign debt it owed as well as government deficits. This crisis of confidence in Greece resulted in the significant downgrade of the Greek bonds into a junk status as well as the Greek bond yield spreads notably rose (Brutti and Sauré, 2016). The financial unrest gradually spread to the entire European Union zone and the European stocks tumbled, and the euro currency reached 2-year lows. Nonetheless, Greece was not the only stressed economy in The Euro Zone, in fact, it turned out to be a tip of the iceberg since other nations in the European Union were trailing on the Same road. Spain, Italy, Portugal and Ireland had accumulated huge budget deficits as well as increased public debt to the Gross Domestic product ratios. Portugal had an economic boom that was being sustained by the significantly lower borrowing rates. Nevertheless, it was hit by expeditious wage inflation which adversely affected the local companies’ competition with other foreign firms (CAI and LI, 2012). The sovereign debt crisis in European region has raised...
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...------------------------------------------------- Ireland & Iceland: ------------------------------------------------- Who made the better choice? ------------------------------------------------- Contents 1. Introduction to the financial crisis 2 2. Conditions leading up to the Irish and Icelandic economic crisis 3 2.1 The business cycle 3 2.2 The era of the Irish ‘Celtic Tiger’ 4 2.3 The ‘Financial Vikings’ of Iceland 5 3. Financial crisis response 6 3.1 Government response to the financial crisis 6 3.2 The default decision 10 4. Economic outlook and long-term repercussions 14 5. Conclusion 18 1. Introduction to the financial crisis The Great Recession began in 2007 as the United States housing market fell into a sharp decline. Many economists consider the resulting financial crisis to be the worst financial crisis since the Great Depression. While the crisis can be traced back to a variety of economic origins, the volatility that existed in the world economy from the 1990’s undoubtedly played a large role (Roubini, 2010). The Asian Crisis that arose after the fall of car manufacturer Kia in 1997 and the burst of the Dotcom Bubble in the early 2000’s resulted in many wealthy countries decreasing interest rates to all-time lows to encourage growth in their economies (Roubini, 2010). These low interest rates led consumers, particularly those in the US, to borrow more money than they could afford to repay (Roubini, 2010). During the financial crisis, credit defaults...
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...Topic: PIIGS (European debt crisis) 吳宇綸D0131292 劉昱顯D0131156 王謙 周雋彥D0125599 Contents 1. Introduction 2. Overview of the European sovereign debt problem 3. Relief measures of the European sovereign debt crisis 4. European debt crisis 5. Conclusion 6. References I. Introduction The PIIGS is a group that composed of five countries that have some commonality in location and economic environments. In this case, PIIGS includes Portugal, Italy, Ireland, Greece and Spain. The countries which be mentioned are all part of European Union members and have been noted for having weak economics and bad situation of financial problems. In 2008, economic crisis came to all over the world, during the worldwide economic crisis, Portugal, Italy, Ireland, Greece and Spain began to come out the grave and serious concern in the European Union refer to the enormous amount of sovereign debt that they were carrying. The problem with the PIIGS is that speculators dropped, compounding their debt issues and the situation might be much more worse. Many European Union members were also unwilling to rescue these struggling nations although when it became very clear that assistance would be needed. The sovereign debt crisis sparked a number of conversations about reforming financial policy in the European Union to prevent similar problems in the future. The members of PIIGS felt displeasure at the negative allusions and some have...
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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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...1. In Greece the banks didn’t sink the country. The country sank the banks. Discuss this view. Which are the main differences between the Greek crisis and the crisis of Ireland and Portugal? The main cause of the Greek crisis is the ongoing disclosure of statistics that were well hidden from the eyes of the public, leaving people in ignorance about their own country and the future. When the figures started to become revealed, breaking up the shocking news about the forgery that lasted for over 30 years, it left the world in wonder – how is it possible to disclose such a thing for so long, and how is it possible that such action remains unpunished? The problems caused by the global recession were compounded by revelations that national statistics had been altered in order to cover the fact that Greece, in terms of debt levels, exceeded limits set down by the EU. The country's debt is already well over 100 percent of GDP and is still rising. According to euro zone rules, total government debt should not exceed 60 percent of GDP. The country's budget deficit in 2009 was almost 13 percent of GDP, more than four times the 3 percent limit allowed in the euro zone. But beyond the debt there is more deficit. What Greeks did when they got all this borrowed money, they gave away incredible sums to citizens, raised the wages to such an extent that it created a serious budget deficit. Inefficient Government? Corrupted mentality? Call it as you like, but it caused consequences that citizens...
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...Sovereign Debt Crisis Karl Whelan, University College Dublin WP11/09 May 2011 UCD SCHOOL OF ECONOMICS UNIVERSITY COLLEGE DUBLIN BELFIELD DUBLIN 4 Ireland’s Sovereign Debt Crisis Karl Whelan University College Dublin 1 May 2011 1 This paper was presented at a workshop on "Life in the Eurozone With or Without Sovereign Default?" that took place at the European University Institute in Florence on April 14, 2011. 1 1. Introduction Among the countries currently experiencing sovereign debt crises, Ireland’s case is perhaps the most dramatic. As recently as 2007, Ireland was seen by many as top of the European class in its economic achievements. Ireland had combined a long period of high economic growth and low unemployment with budget surpluses. The country appeared to be well placed to cope with any economic slowdown as it had a gross debtGDP ratio in 2007 of 25% and a sovereign wealth fund worth about €5000 a head. Fast forward four years and Ireland is shut out of sovereign debt markets and in an EUIMF adjustment programme. Its debt-GDP ratio has soared over 100% and the sovereign wealth fund is effectively gone. In this short paper, I provide a brief review of how this rapid change came about and discuss potential future developments in relation to Ireland’s sovereign debt situation. 2. The Rise and Fall of the Celtic Tiger It is now well known that Ireland’s famed “Celtic Tiger” ended with the collapse of a housing bubble and a banking crisis. Many have...
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...Introduction That national bankruptcy means either government debt is far greater than government revenue or government debt is far greater than GDP. General speaking, since it was considered to be caused by high welfare policy which is the support of people's good life. This is often seen in most of western countries. This is also a long war due to maintain the people's living standard such as Iceland. There is a long-term welfare policy in most of western countries while the national output are not very big. Comparing the financial history of the events leading up to the financial crisis of both Iceland and Ireland Ireland Financial Bubble Burst Among the countries currently experiencing sovereign debt crises, Ireland’s case is perhaps the most dramatic. Over the past decade, Ireland has made remarkable economic achievements which created a record of continuous growth miracle. From 1996 to 2007, average annual economic growth rate of Ireland was 7.2%, which won the "Celtic Tiger" reputation. After several years of development, according to per capita GDP, Ireland became the second wealthiest country in a comparison of European Union countries, after Luxembourg. One of major factors to drive rapid growth economy of Ireland is high-tech development. Since the mid-20th century, the Irish government put great emphasis on high-tech development, implementation of the strategy of reinvigorating the Ireland with science and technology, which laid the foundation of the Irish pharmaceutical...
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...Assignment Title: Understanding Ireland’s Economic Crisis and Recovery Words Count: 1500 words (Excluding references) Introduction In 2008 Ireland plunged into one of its most severe economic crisis recorded since pre-war times. This paper looks at the monetary policies and conditions during Ireland’s recessionary years and in conjunction the key features and policies that were introduced by monetary authorities in order to restore financial stability in Ireland. This includes looking at policies such as the recapitalisation of banks and blanket guarantee in order to stabilize the banking system. Following this an insight into Ireland’s people and the banking systems combined. This deals with restructuring loans given to households and companies. A huge emphasis was placed on mortgages given to households during the boom times. Prevailing monetary conditions and policy context for the Irish Economic Crisis When Ireland was announced “in recession” back in 2008 numerous monetary conditions and policies were to blame. Ireland had issues with its banking systems. Its banks needed urgent and constant capital injection to the point the government alone could no longer support them. This soon highlighted that there were clearly further solvency issues underlying. The cause of the recession was blamed on the ever expanding property market to its bust point. This played a significant factor but was not the...
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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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...This essay will talk about what is currently going in Europe with the Eurozone sovereign debt crisis and the fiscal state the European Union is in, it is important and interesting because it is still current affairs and there are various factors and decisions that have helped the path that the crisis is going in, this essay will look at the crisis but on the implications and problems that European union face as well as what they have faced already and whether the European Central Bank are doing enough to improve the situation and what their plans are for the future. A sovereign bond serves as a floor for interest rates banks charged for loans and for the pricing of other financial contracts and securities. The global financial crisis led to the deterioration of government budgets and finances as nations utilized public expenditures to provide stability and stimulus. The Eurozone suffered because of heavy borrowing practices, property pebbles and living above their means. The Eurozone debt crisis started because Greece who had borrowed heavily in international capital markets over the past decade were turned against by investors this is because Greece in 2009 admitted that they had double the amount of debt that was allowed in the Eurozone limit. Ratings agencies started to downgrade Greek bank and government debt, and there was fear of Greece defaulting and not being able to pay back its debts but the Greek Prime Minister George Papandreou insisted otherwise however this was not...
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...The European Sovereign-debt Crisis Throughout history, debt has been an issue and a concern for many countries around the world. Nations borrowing money, unnecessarily spending, corruption, inability to pay back loans and a variety of other factors have contributed to the devastating and lasting effects of monetary absolution. In recent years, some of the most significant and devastating economic occurrences that have taken place were released to the general public. One that has received a great deal of attention is known as the European Sovereign- debt Crisis or the Euro zone crisis. The European Sovereign Debt crisis is an ongoing financial crisis that has made it impossible for some countries in the Europe to repay or refinance their government debt without the assistance of third parties (Wikimedia). Countries across the European Continent are struggling to find ways to cope with the crisis and the impact that it has taken on debt stricken nations. Europe’s politicians, regulators, and market players are trying different approaches to deal with the problems at hand (Bloomberg LLP). Due to the number of countries that are involved this financial crisis is not only affecting these countries but the entire world. The Euro zone crisis had a variety of origins that grew their roots over a course of many years, but the situation was not released to the general public until back in late 2009 when the concerns intensified. Fears of a Sovereign Debt Crisis arose among investors...
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...THE EURO IN CRISIS Objective Of Study The objective of the following study is to understand and analyse the recent euro debt crisis which led to the temporary fall of the euro. Through this study, attempt has been made to single out EU member countries and the events in those countries that led to the crisis. Policy recommendations have also been stated to further help the main objective of dissecting and understanding the problem. INTRODUCTION Over the last two years, the euro zone has been going through an agonizing debate over the handling of its own home grown crisis, now the ‗euro zone crisis‘. Starting from Greece, Ireland, Portugal, Spain and more recently Italy, these euro zone economies have witnessed a downgrade of the rating of their sovereign debt, fears of default and a dramatic rise in borrowing costs. These developments threaten other Euro zone economies and even the future of the Euro. Such a situation is a far cry from the optimism and grand vision that marked the launch of the Euro in 1999 and the relatively smooth passage it enjoyed thereafter. While the Euro zone may be forced to do what it takes, it is unlikely that the situation will soon return to business as usual on its own. Yet, this crisis is not a currency crisis in a classic sense. Rather, it is about managing economies in a currency zone and the economic and political tensions that arise from the fact that its constituents are moving at varying speeds, have dramatically different fiscal capacities...
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