...The Euro Crisis According to Wikipedia (2012), the Euro Zone is comprised of 17 members that have accepted the euro as their only method of payment for goods and services. Monetary policy and management of inflation levels is governed by the ECB (European Central Bank) which consists of a president and board originating from central banks within the area. Since the late 2000's the Euro zone has experienced financial troubles mainly resulting from the varying degrees of difference between fiscal and monetary policy within each country. The majority of the debt can be attributed to the increase in both public and government debt around the globe as well as the arising debt within the euro zone. Some countries were noted for their involvement in the property crisis while other countries including Greece developed most of their financial obligations from increased public sector wages and pension contributions at an unsustainable level. As the desire for higher yielding investments expanded, many investors sought global markets as those offered by the U.S. Treasury. Norbert Walter (2012) argues that different growth rates, employment levels and unit labor costs have attributed to the euro crisis leading to heightened risk premiums and increased capital flights to those with lower risk assessments. Trade imbalances resulted from rising labor costs within several countries as well as accumulation of trade surpluses between those with the same currency that prevented appreciation...
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...www.capitalvia.com G lobal Research Limited I MPACT of G REECE White Paper - Impact of Greece Crisis Global Research Limited Introduction Historically, financial crisis tend to lead to sharp economic downturns, low government revenues, widening government deficits, high levels of debt, pushing many governments into defaults. This is called SOVEREGIN DEBT CRISIS. GREECE is currently facing this, it accumulated high levels of debt during the decade before the crisis, when capital markets were highly liquid. As the crisis has unfolded and there was liquidity crunch in world economy, Greece may no longer be able to rol over its maturing debt obligations. Build – Up To The Current Crisis Between 2001-2008, Greece reported budget deficits averaged 5% per year, compared to Eurozone average of 2%. Also, its current account deficits averaged to 9% per year compared to Eurozone average of 1% Greece funded these twin deficits by borrowing in international capital markets, leaving it with chronically high external debt (115% of GDP in 2009) Some of the facts which can be depicted from following charts : www.capitalvia.com 2 White Paper - Impact of Greece Crisis G lobal Research Limited How Country Debts And Budget Deficits Compare? Projected budget deficit for 2009 Budget deficit figs as % of GDP Debt as % of GDP 68.6% UK 13% 112.6% Greece 12.5% 54.3% Spain 11.25% 65.8% Ireland 10.75% 114.6% Italy ...
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...The Euro Debt Crisis: Greece’s and its Next Move Matthew Schrock Financial Markets & Institutions Dr. Victoria Geyfman December 6, 2012 “The Euro Crisis and Greece’s Next Move” The Euro currency, during its original preparation and issuance, had been seen with optimism. It was presumed that the new union of European markets would create a new economic power within Europe, matching it with other economic leaders such as the U.S. and other powers. At this point in history, the Euro seems to be on the brink of despair. The European Monetary Union had determined and established the prerequisite diplomacy and policy making to assure a newly created stable and integrated economy of Europe. The reality of this new currency and monetary union is far from the original optimistic outlook. Policy set forth in the original agreements and conditions of the European Monetary Union that had been established before its adoption had been treated without regard by countries. This disregard started with deceit from Greece but quickly became almost the status quo. Greece is known as the catalyst and a scapegoat within the views of the Euro debt crisis. Greece is on the brink of insolvency and others are following. Options are available in this time of uncertainty, whether they are conventional or not, that could result in Greece remaining within the Euro and accepting austerity or altering their status and participation within the monetary union. The decision that will be...
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...Eurozone crisis explained * Impact on you * Spain in numbers * Spain Q&A * Greece Q&A * Causes Continue reading the main story What went wrong in Greece? BACK1 of 10NEXT Continue reading the main story ------------------------------------------------- Eurozone crisis * Q&A: Spain's woes * Keeping the euro together * Who's afraid of the euro crisis? * How eurozone crisis affects you After months of refusing to countenance the possibility of Greece leaving the euro, eurozone politicians slowly began to acknowledge there may be no option but to let the country go. The result of the general election on 17 June will please those who hope Greece will remain in the euro bloc. But the outcome is far from clear. The election result means the victorious party, the centre-right New Democracy, will be able to form a coalition intent on pushing through the austerity measures insisted upon by the European Union and the International Monetary Fund. But no one knows at this early stage just how long a coalition will last and whether, ultimately, Greece's problems will become so overwhelming that it will be forced to leave the euro. Syriza, which came second in the election, continues to oppose the austerity programme and is promising to freeze payments to creditors and renegotiate the terms of the bailout from the EU and IMF. Germany has led demands that the loan terms are not negotiable. Why is Greece in trouble? Greece was living...
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...THE EURO CRISIS The entire global attention is currently focused towards the ongoing crisis in the Euro zone. The present article seeks to simplify and logically explain the crisis which has engulfed PIIGS. Q1) What does the term PIIGS stand for? Ans. PIIGS stands for Portugal, Ireland, Italy, Greece and Spain. The current Euro crisis started in Greece and has now finally spread to Italy. In fact, there is a worry that ultimately it will slowly engulf the entire Euro zone and that there will be sovereign defaults. Q2) What is a sovereign default? Ans. Sovereign default occurs when a country defaults on the loans it has taken and is unable to repay them as per the originally decided terms. Sovereign default is considered catastrophic as the lenders normally have to make huge sacrifices. Q3) How did the crisis originate in Greece? Ans. Greece had a very liberal social security program for its citizens. Govt aided healthcare, education, pensions etc. which were heavily subsidised as the Greek Govt was bearing the major part of the expenditure. The Greek Govt went on a borrowing spree to finance its expenditure leading to the current debt position which looks unsustainable. It is feared that there will soon be a contagion effect. Q4) What is the contagion effect? Ans. Contagion is derived from the word “contagious” which means to spread. The worry is that this alarming situation would spread to soon other Euro regions leading to many sovereign defaults. Already pain is being...
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...The European crisis started in January of 2010, during this period there was increased worry regarding high national debt. Worried investors demanded increased interest rates from a number of countries with high debt amounts or deficits. These countries then faced hardship in servicing their debt, hence suffering additional budget deficits (Wearden, 2011). The political leaders in these countries took austerity measures for example higher taxes and reduced government expenses, resulting in social unrest. However, Valentina (2011) points out that there are other countries like Germany, which made billions of Euros from this crisis since investors moved to Germany because it was taught to be safer. Similarly, Switzerland benefited from the crisis because of its lower interest rates. There are a number of complex factors that have contributed to the European debt crisis; they include globalization of financial institutions, international trade imbalances, slow economic growth, easy credit condition that existed from 2002 to 2008 among other factors. According to Moody (2011) the reasons behind the crisis stem from the high increase in savings present for investment in the course of 2000 to 2007. In the course of this period, the international pool for fixed income increased by nearly $36 trillion. The temptation presented by this readily high saving led to countries overlooking their regulatory when it came to borrowing and lending money. A number of politicians like Angela Merkel...
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...EUROZONE CRISIS The Eurozone in 2012 EUROZONE CRISIS: Eurozone fracture in 2012 This paper outlines a plausible scenario in which the Eurozone fractures in 2012. Events are unlikely to follow the path precisely as described, given the complexity of the problem and the number of variables which are continually changing. That said, we feel 2012 is unlikely to end with all the current members still being part of the Eurozone. Mapping a ‘break-up’ scenario should help readers understand how fragmentation could occur and therefore assist businesses’ contingency planning. To this end the paper highlights some key events and when they are due to take place. It also identifies some key indicators to monitor which are likely to dictate how the crisis will unfold. EXECUTIVE SUMMARY A plausible scenario for Eurozone fragmentation in 2012 would see elections in Greece, France, Finland and probably Italy changing the terms of the debate to reflect frustration with economies in recession, rising unemployment and hostility to proposed or actual austerity measures. In this scenario, Greece receives an irregular rescue from the European Financial Stability Facility (EFSF) and negotiates a rescheduling of its debt in March. But once its April elections are over, the new Greek government is unable to secure bailout funds having missed austerity and reform targets, prompting a formal sovereign default. Greece announces its withdrawal from the Eurozone, closing its banking...
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...How will the Euro crisis affect the economy of China? Table of Contents Introduction...…………………………………………………………………… 2 The formation and evolution of the Euro zone crisis….…………………………3 The serious relationship in trading and investment filed between China and Europe ………………………………………………………….………………………..9 The influence of Euro zone crisis on China economy……..……………………10 Conclusion………………………………………………………………………15 Bibliography………….…………………………………………………………16 How will the Euro crisis affect the economy of China? Many economists now are analyzing the Euro zone crisis. As the biggest trading partner to China, how the Euro zone crisis affects China’s economy cannot be ignored. No matter the decision makers of the enterprises or the decision making department of the government, all need foresight to evaluate the risk and influence of the crisis and prepare the answer before that happens. This paper will provide some analysis and strategic thinking about the influence of the Euro zone crisis on China. Introduction: On August 25th, 2011, the president of France, Nicolas Sarkozy, came to visit China. According to the market prediction, the purpose of his visit was come to further persuade China to purchase European bonds, to support the recovery of Euro zone. The official media of the Chinese government reported that, the chairman Hu at that time expressed two points about China’s attitudes to President Sarkozy. First of all, China cared about the influence...
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...Causes of Euro debt crisis 1. Profligacy of the European Government & Unsustainable Fiscal Policy Countries including Greece, Portugal, Ireland, Spain and Italy in Europe are now paying a heavy price on their profligate way of spending, as reflected by the Euro debt crisis starting from late 2009. Fiscal policy is the use of government expenses and taxation income so as to influence the economy, while the average fiscal deficits had grown from 0.6% in 2007 to 7% at the beginning of the debt crisis across the Europe (Économistes Atterrés, 2010). Therefore, more and more debts were being issued by the above governments so as to support their national expenses, leading to an excessive rise in government debt levels. For instance, the average government debts per GDP had raised from 66% to 84% in the same period (Krugman, 2012).Basically, government debt is the money owed by the central government to the debt holders. As a result, with a high level of the debt-to-GDP ratio may imply that the country is less likely to repay the debt holders but higher chance to default on its debt obligations. Greece, contributing about 3.3% of the annual GDP towards the European Union (Central Intelligence Agency, 2012), with a 165.3 % of debt-to GDP ratio in 2011, was responsible for the outbreak of the Euro debt crisis. Historically, Greece Government’s Debt to GDP ratio was already at a relatively high level across Europe (McAuley, 2011)(Graph 1). Following by the adoption of the...
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...While not exhaustive, below is a list of the ECB’s most substantive actions to combat the crisis in chronological order. LTRO (Long Term Refinancing Operations) – December 2011 Essentially the ECB lending money to banks at very low interest rates. Used throughout the crisis dating back to March 2008, but in Dec 2011 the ECB announced LTRO with a three year term with and a 1% interest rate. SMP (Securities Market Program) – May 2010 ECB program under which it would intervene in bond markets and purchase sovereign debt, that it would typically accept as collateral, on the secondary market from banks at market prices. EFSM (European Financial Stabilization Mechanism) – May 2010 Emergency funding program, backed by all 27 members of the EU, that allows the European Commission to borrow up to 60bn euros in the financial markets, using the budget of the EU as collateral. EFSF (European Financial Stability Facility) – June 2010 Financing vehicle established to collect funds from member states, and in conjunction with the IMF cover financing needs of stressed member state, subject to strict policy conditionality. Euro area Member States will provide guarantees for EFSF issuance up to a total of € 440 billion. Draghi’s Pledge – July 26, 2012 "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough". Draghi’s equivalent of Paulson’s bazooka. Proved to be one of the more effective actions the ECB has taken....
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...University – School of Management MBA – 506 The Euro in Crisis: Decision Time at the European Central Bank LaRisha Baker Professor: Tom DiCorcia November 30th, 2014 Introduction The European Central Bank (ECB) is the central bank for Europe's single currency, the euro. Its main task is to maintain the euro's purchasing power and maintain price stability in the euro area. The euro area comprises of 18 European Union (EU) countries, of which Greece is included (European Central Bank, n.d.). As the EBC holds extraordinary decision-making power, this will in effect have an impact on the financial economy of Greece. From this case analysis, the ECB must decide whether to purchase or to not purchase Greek sovereign debt (Trumbull, Roscini & Choi, 2011). The Problem After the sub-prime mortgage burst in the United States, this sent reverberating shock waves throughout world economies. As the US economy tightened, economies around the world were also affected; adversely affected highly leveraged banks in the Eurozone. Though providing financial bailouts were against the Eurozone philosophy, with fear looming that Greece would default on its debt, this put pressure on Eurozone members to intervene (Trumbull, Roscini & Choi, 2011). For the euro to maintain stability, a bailout for Greece was imminent. If no Greek bailout were made available, this could potentially upset the stability of the entire EU and the euro. The ECB had been slow to act, in part due to reluctance...
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...SUMMARY OF THE EURO CRISIS – OVERVIEW OF EVENTS TILL DATE The Euro Crisis had its making in the US financial crisis of 2008-09. Before 2008, Euro Zone nations had been borrowing indiscriminately owing to low interest bonds available due to being part of Euro Zone. Also, they were banking on their high growth rates to pay back those loans. However, as a result of US financial crisis, growth slowed down, resulting in slowing down of tax revenues. Meanwhile, the interest on loans was accruing. Combined, these factors led to huge fiscal deficits. Greece was the first country to feel the heat due to high budget deficits. When new government came into power in Greece in 2009, it announced that previous government had fudged about the fiscal deficit, and showed it to be lower than it actually was. It was found that Greece’ debts actually exceeded the size of its economy. Seeing the higher risks associated with giving loans to Greece, lenders started asking for higher returns not only from Greece, but from other heavily indebted countries – Ireland, Spain and Portugal. The four countries are together referred as PIGS. Unlike Greece, in Ireland, government kept its spending in check but ended up in debt by guaranteeing the liabilities of banks which lost their money in property bubble burst. The high lending costs for Greece coupled with the high debt made the fears of Greece defaulting on loans real. Since the banks of Germany and France had exposure to 15% of Greece’s debt, defaulting...
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...EUROPEAN DEBT CRISIS – ORIGIN, CONSEQUENCES AND POTENTIAL SOLUTIONS F RA N TI Š E K N E M E T H Abstract What is the European debt crisis? As the head of the Bank of England referred to it in October 2011, it is “the most serious financial crisis at least since the 1930s, if not ever.”1 In fact, the European debt crisis is the shorthand term for the region’s struggle to pay the debts it has built up in recent decades. Five of the region’s countries – Greece, Portugal, Ireland, Italy, and Spain – have, to varying degrees, failed to generate enough economic growth to make their ability to pay back bondholders the guarantee it’s intended to be. Although these five were seen as being the countries in immediate danger of a possible default, the crisis has far-reaching consequences that extend beyond their borders to the world as a whole. Introduction The global economy has experienced slow growth since the U.S. financial crisis of 2008-2009, which has exposed the unsustainable fiscal policies of countries in Europe and around the globe. Greece, which spent heartily for years and failed to undertake fiscal reforms, was one of the first to feel the pinch of weaker growth. When growth slows, so do tax revenues – making high budget deficits unsustainable. Greece's economy has struggled since the country joined the euro in 2001. In 2004, it admitted its budget deficit was higher than allowed under rules of entry. By 2008 the government had narrowly passed a belt-tightening budget...
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...How did Europe Economic Crisis begin? After went through our research and discussion, we knew that many of the Western world borrowed too much due to low interest rates and cheap credit in the 2000s. According to the US, this issue caused a property bubble which burst in between 2007 and 2008, causing a financial crash as banks worldwide including Europe had to write off lots of assets so had much less money than they thought. This had two effects, it caused interest rates to rise a lot, so that banker couldn’t lend out money and governments took on lots of debt bailing out banks. Some countries in Eurozone such as Ireland, Spain, Portugal, Italy and Greece all had very high national debts, either from overspending pre-crash, or bailing out their collapsing banks. High debts plus recession which is decreasing government tax revenue plus high interest rates equals threat of bankruptcy. So, all the above issues are specific to Europe, and we are discussing about the Eurozone economic crisis. Basically, all countries adjust their economies with monetary policy. With a unified currency, less productive countries e.g. southern Europe couldn't do this, so became less competitive and borrowed. They also able to borrow at cheap interest rates because of the currency union. This was part of why debts got so high in the southern of Europe. At the same time, Eurozone not only facing all those problem but also another problem. Normally a country almost no default because it can just print...
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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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