...European Crisis and its effect in the International Market After the Second World War, the world was in search of a new alternative to stop with the horrific wars between nations. In 1950, France, Italy, Germany, Luxemburg, Belgium and Netherlands joined in order to obtain peace, protectionism and economic advantage. It was the foundation of the current European Union. This significant moment in history was followed by a remarkable transformation around the world: the globalisation of the market. Globalization was described by Joseph Stiglitz (2002) as “the removal of barriers to free trade and the closer integration of national economies”. This new reality, from local to a global market, made businesses and countries adapt themselves forcing the implementation of new alternatives to survive against international competition and to get economic strength in this new aggressive world. Market competition was no longer limited to country’s borders but it was also suffering from foreign rivalry. The European Union’s countries members were integrated with the purpose to be a unique market being the world major regional trade cooperation. Since its foundation, the Europe Union have been engaged in this integration and it had demonstrated strength in the implementation of a free trade area, controlling a large part of the international market. Although the history of Europe Union had appeared to be a history of success of integration and cooperation, in the last two decades...
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...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 may expect that bargaining and compromise will play a greater role than in cases where the two players are simply the Ardagna: Goldman Sachs; Peterborough Court 133 Fleet Street, London EC4A 2BB; silvia.ardagna@gs.com. Caselli:...
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...The Financial and Banking system of: Italy Presented In Partial Fulfillments of the Course Requirements for FIN 4634 International Banking Presented for: Marcos A. Kerbel Participating Adjunct Professor Department of Finance & Real Estate Florida International University Miami, Florida Prepared by: Lisandra Cabrera Panther ID: 3553624 Phone: 786-518-8234 Email: lcabr025@fiu.edu Reported dated: 7/21/2012 Table of Contents I. Geography ................................................................................................................................. 4 II. History of the Country............................................................................................................... 5 III. Country’s Financial System..................................................................................................... 6 a. History Overview ………………………………….................................................... 6 b. Present Monetary Laws and Regulations…………………………………………….. 7 c. Types of Financial Institutions operating in the country............................................... 8 d. The Central Bank ...………………………................................................................... 8 e. Bank Regulation............................................................................................................. 8 f. Commercial Banks Operating in the country ................................................................ 9 IV. Country’s...
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...Number 306 The debt crisis and the European Central Bank’s role of lender of last resort by Carlo Panico and Francesco Purificato 1. The debate on the role of the central bank in the European debt crisis reveals the increasing difficulty of the authorities to apply sensible solutions. De Grauwe and Ji express this opinion by noticing that unfounded fears ‘have been widely advertised in Germany and have contributed to creating a view in that country that the German taxpayer is likely to become the victim of a money machine that rewards the profligacy of Southern European countries’ (De Grauwe and Ji, 2012, p. 1). These fears ‘have become powerful political forces that make it difficult for the governments to find rational solutions to the euro crisis’ (De Grauwe and Ji, 2012, p. 13). In order to appraise this opinion we discuss how the European Central Bank (ECB) and the Eurosystem have been intervening in favour of the Government sector. We start by noticing that central banks can play the role of lenders of last resort in favour of the banking and of the Government sector and that “moral hazard” problems emerge in both cases. Yet, they have only been mentioned to curtail the interventions in favour of the Government sector, in spite of the fact that, during the last two decades, moral hazard regarding the behaviour of the Government sector has proved easier to solve than that regarding the behaviour of the managers of financial firms. The rules on multilateral surveillance, introduced...
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... 5 2.0 The Economic Cost and Benefit for State Membership of the EMU 5 2.1 Benefits of EMU Membership & Mechanisms 5 2.2 Costs of EMU Membership 7 3.0 Contextual Factors: The Profusion of Dept 10 3.1 The Eurozone Crisis 10 3.3 Greece- The Forefront of the Euro Area Crisis 13 4.0 Alternate Policies and the Effective Consequences 15 4.1 Predicament 15 4.2 Abetting Dependent on Austerity 16 4.3 Creditor-Led Default 17 4.4 Debtor-led Default and Greek Haircuts 19 4.5 Greek Exit 20 5.0 Recommendation 21 Appendices: Appendix 1: Preferential liberalization References List of Illustrations Pg. Illustration 1: The cost of EMU- Diminishing Domestic Flexibility to Asymmetric Macro Shocks 7 Illustration 2: Cost and benefit of Monetary Unions 9 Illustration 3: Evolution of Nominal Unit Labor Costs in the Eurozone Pre to the US Credit Crunch 9 Illustration 4: Current Account Balances in Percentage GDP 10 Illustration 5: Core Bank Exposure to the Weaker Eurozone Member States 12 Illustration 5: Holders of Greek Government Bonds and Dept (in billion Euro) 16 Executive Summary The standing Economic and Finance minister of Germany has commissioned the policy paper for the forthcoming Council of Economic and Finance ministers meeting. The policy undertakes a consideration of whether Greece should exit the European Union on economic grounds...
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...Questions and Applications * Agency Problems of MNCs a) Explain the Agency problem of MNCs R/: It refers to the conflict of interest between the manager and the subsidiary. The manager creates a subsidiary for the purpose of making decisions that increase the expectations of the shareholders, the subsidiary making the decisions for the purpose of increasing their own profits, they have forgotten the purpose of the manager who has to create incentives or compensation to guide the subsidiary and together achieve the goals. b) Why might agency cost be larger for a MNC than for a purely domestic firm? R/: For cost, monitoring, and size. The MNC is larger and incur many more monitoring costs with subsidiaries abroad, it is also more difficult for foreign subsidiaries to follow the same goals as the MNC, and the size generates chaos. * International opportunities Due to the internet. a) What factors cause some firms to become more international than others? R/: As companies take advantage of labor, they can produce their products in other countries at lower prices. The theory of comparative advantage; where countries use the specialization of a product and internationalize that product to meet the needs of other countries. The imperfect cycle theory and the product cycle theory. (a) Offer your opinion on why internet may result in more international business? R/: The internet allows rapid communication between boundaries...
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...supermercados Domínguez Morán, S.A – DOMOSA. En la actualidad mantienen una línea con ellos de financiación de sus compras por un importe máximo de 500.000 euros a 30 días sin coste. Si financian hasta 45 días les cobran un coste financiero de un 6,5 % anual. DOMOSA es un cliente que no ha planteado problemas hasta ahora, pero ha venido creciendo en número de supermercados y solicita un aumento de la línea a 800.000 de euros y la eliminación de costes financieros hasta los 45 días. En la multinacional cuentan con los balances y cuentas de pérdidas y ganancias de DOMOSA correspondientes a los ejercicios 2011 y 2012, que se muestran en el Anexo. Por otra parte, la propia multinacional cuenta con información interna sobre las ventas reales que han logrado realizar a DOMOSA en los dos últimos años completos más los dos primeros trimestres de 2013. Además se cuenta con la previsión de nuevas ventas calculadas para el resto del año en base a los pedidos que estima DOMOSA se van a producir. Esta previsión de nuevos pedidos es uno de los argumentos utilizados por DOMOSA para justificar su solicitud de una ampliación de la línea de financiación. Esta información aparece detallada en el cuadro siguiente: CASO DOMÍNGUEZ MORÁN, S.A Datos sobre compras realizadas y previsión calculada en base a la estimación de pedidos facilitada por DOMOSA Cifras en Euros PERÍODO TEMPORAL Primer trimestre Segundo trimestre Tercer trimestre Cuarto trimestre VENTAS TOTALES VENTAS MEDIAS POR TRIMESTRE VENTAS MÁXIMAS...
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...EMS The European Monetary System (EMS) was the forerunner of Economic and Monetary Union (EMU), which led to the establishment of the Euro. It was a way of creating an area of currency stability throughout the European Community by encouraging countries to co-ordinate their monetary policies. It used an Exchange Rate Mechanism (ERM) to create stable exchange rates in order to improve trade between EU member states and thus help the development of the single market. Stable money had been a key part of international economic calculations since World War II. However, by the 1980s, opinion about it was much more divided. As a result, not all countries took part in the EMS straight away, and there were deeper splits in the years to come over the role of the EU in setting monetary policy as the EMS was replaced with the Euro. History The EMS was launched in 1979 to help lead to the ultimate goal of EMU that had been set out in the Werner Report (1970). The EMS came about because of the high global inflation and economic stagnation that characterized much of the 1970s. Contributing greatly to these problems was the sorry financial predicament of the United States during this decade. The dollar, which served as a peg for European currencies, was plagued by a ballooning American deficit, the oil crisis, a rapid rise in the demand for gold in world commodity markets, and unemployment and "stagflation" at home. The currency exchange rates of European Community (EC) members fluctuated...
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...NEWS LETTER Date: 29/11/2011 Sensex: 16008.34-158.79 Nifty: 4805.10-46.20 USD: 52.09-0.14 Important News Sensex in red; Bharti Airtel, Reliance Industries, Tata Power down MUMBAI: The Bombay Stock Exchange's Sensex failed to hold on to intraday gains and slipped back in the negative territory due to lack of buying support near higher levels. According to dealers, the market is likely to remain range bound ahead of Q2 GDP figures to be released Wednesday. The GDP for quarter ended September is expected to have slipped below 7 per cent. At 1 pm; the Sensex was at 16095.33, down 71.80 points or 0.44 per cent. The 30-share index touched intraday low of 15995.57 and high of 16210.37. The National Stock Exchange's Nifty was at 4832.60, down 18.70 points or 0.39 per cent. The broader index touched a high of 4866.10 and low of 4802.85 in trade so far. BSE Midcap Index was up 0.17 per cent and BSE Small cap Index moved 0.25 per cent higher. Amongst the sectoral indices, BSE Oil gas Index was down 1.15 per cent, BSE IT Index declined 0.70 per cent and BSE Realty Index declined 0.61 per cent. BSE Healthcare Index was up 0.52 per cent, BSE Auto Index gained 0.34 per cent and BSE FMCG...
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...“Euro: A common currency used by many European countries. The euro was established in 1999 when 11 European countries adopted a common currency in order to facilitate global trade and encourage the integration of markets across national borders. Euro banknotes and coins began circulating in January 2002.” (The Financial Dictionary) “The euro was introduced in 1999 and became the official currency of participating nations in 2002. It was intended to remove the exchange rate risk of businesses participating in the EU's common market and free trade association. It has become one of the world's most important currencies. Proponents of the euro state that it is more valuable than the former currencies, while opponents say that it has made goods and services in their home countries more expensive. The euro's ISO 4217 code is EUR.” (The Financial Dictionary) According to the European Commission Euro currency, the euro is currently the single form of money shared by 17 of the European Union’s Member States, this makes up the euro area. The euro was introduced in 1999 and was a major leading step in European integration. The euro has many major benefits; some of these are the sharing of a common euro currency which is enabling the less expensive and simpler inter-nation trading. This common currency also allows less fluctuations and a lesser risk. In Global terms the U.S. dollar is the leading currency and now the euro is the second most important with the Sterling British...
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...PORTUGAL Exchange Rates Portugal belongs to the euro zone since its creation, so the currency is the euro. The following graph shows the evolution of euro since its creation in 1999. However, some countries, like Brazil, started to trade with the new currency when it entered in circulation in 2002. As we can see, there has been an appreciation of the Euro respect some currencies like UK sterling pound but generally, from 2008 there has been a depreciation of the euro due to the euro crisis. This factor has affected Portugal in the decrease of the trade deficit as we saw previously. However, Portuguese productivity has not increase in the same line as the main countries. To see how the evolution of real exchange in Portugal within the euro zone, the major factor is the evolution of CPI and Labor productivity: Observe how Portugal has lost competitiveness against countries like Germany, UK and US. The real exchange rate based on CPI shows a divergence between Portugal and the reference country, Germany, proving the data about the lost in price competitiveness of the country in EU. Purchase Power Parity The ppp of Portugal is substantially low compared to those of Italy, Germany or US Here we can see the disparity between countries in the eurozone after ten years of common currency. Portugal ppp is about 80% of the average in the EU27, the 10th lowest in the EU. Labour Force Labor force size has remained stable at around 5.5 million...
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...27.12.2011 Sovereign Debt Crisis - Greece vs. Argentina Everyday more and more headlines are being filled with the debt crisis in Europe. But the center stage of the developments in Europe is being taken away by Greece. As Greece is being basically bankrupt, its expenses are way bigger than its obligations; it is also being supported by the EU because of the fear of consequences from its collapse. Analyzing a Bloomberg article, about two economists, and their view of the Greece debt crisis, I found out that they tried to compare the “Greece crisis” with Argentina’s default in 2001. They argued about two lessons concerning how and what could Greece possibly go through. According to the article “the first lesson has to do with the timing and size of the debt exchange”. As I figured out it is about building up the solvency for the debt in way to get access to capital markets. First of all in the article it says that “Greece and its private creditors have been invited to implement a bond exchange with a nominal discount, or haircut, of 50 percent of face value”. This voluntary agreement they also call the default. So in order to do the right thing, the Greece attempt to extend the debt relief beyond the 50% haircut agreed upon, should be assessed by someone. Also it is argued that the faster Greece starts contributing solutions instead of delaying their problem they will be able to begin normalizing the relationship with capital markets. The second lesson as said in the article...
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...(unimaginably long) holidays, acting with apparent disregard for the dire predictions in the press of a European Union (EU) on the verge of bankruptcy and dissolution. Meanwhile, financial markets backed off from their attacks on the PIGS (Portugal, Ireland, Greece, and Spain) while those porcine countries moved forward with significant reforms, slashing their deficit and debt levels. German growth in the last quarter has driven eurozone growth to above U.S. levels, giving pause to euroskeptics and glee to euroboosters on both sides of the Atlantic. And yet the EU is far from out of the woods. The past two years of global economic upheaval have sorely tested the EU’s Economic and Monetary Union (EMU) and its crowning achievement, the euro. At base, the problem is simple: the EU is an outlier in political and economic history, and markets do not know what to expect from its unique combination of a single currency and separate nation- states. The eurozone crisis reveals the challenges of the EU’s sui generis political status—no longer a mere collection of nation-states, yet not a fully fledged federal entity. What, then, should we expect for the future of European integration? What does the stillunfolding eurozone crisis mean for the larger geopolitical position of the EU? Absent a crystal ball, any response is necessarily hazy and conjectural. Nevertheless, it is possible to sketch out some significant milestones and signposts that will determine the path of Europe’s...
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...Kai “The euro was a bad idea from the start. Now it is only a matter of time before the Eurozone falls apart.” Introduction: The international financial crisis in United States in 2008 is not over, then the sovereign debt crisis broke out in Euro Zone, the world economy is going through a difficult period of adjustment, especially euro area reached the point of exhaustion. According to this, some economists hold opinion that the Euro Zone was a bad idea from the start, now it is only a matter of time before the Euro Zone falls apart. This essay aims to analyze the positive and negative effects of Euro and finally to illustrate that the existence of the Euro Zone is necessary and correct. The advantages for the Euro Zone members Firstly, the most significant advantage is that the unified currency will greatly promote the mobility of goods and factors of production between the member states in European, which will further increase the resource allocate efficiency, create a robust competitive environment. Nowadays, the openness between euro members is increasing rapidly. According to the statistics of World Bank in 2011, the mutual exports between EU members accounts for 10%-25% of its output. In addition to this, the use of euro will reduce the costs in international trade among EU countries and transaction costs for collecting, processing, and analyzing the foreign exchange rates. Moreover, although there is a unified market within the European Union before the Euro Zone has...
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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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