...------------------------------------------------- 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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...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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...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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...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 and chemical companies as well as communication and information competitiveness. Whether the export or to attract foreign investment, the Irish are also eye-catching performance, which contributed to economic growth. But there are some bad. Real estate bubble is the initiator of the debt crisis in Ireland. With the real estate bubble burst, coupled with the impact of the...
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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 thus...
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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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...European Crisis From late 2009, fears of a sovereign debt crisis developed among investors concerning rising government debt levels across the globe together with a wave of downgrading of government debt of certain European states. Concerns intensified early 2010 and thereafter[3][4] making it difficult or impossible for Greece, Ireland and Portugal to re-finance their debts. On 9 May 2010, Europe's Finance Ministers approved a rescue package worth €750 billion aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility (EFSF).[5] In October 2011 eurozone leaders agreed on another package of measures designed to prevent the collapse of member economies. This included an agreement with banks to accept a 50% write-off of Greek debt owed to private creditors,[6][7] increasing the EFSF to about €1 trillion, and requiring European banks to achieve 9% capitalisation.[8] To restore confidence in Europe, EU leaders also suggested to create a common fiscal union across the eurozone with strict and enforceable rules embedded in the EU treaties.[9][10] While the sovereign debt increases have been most pronounced in only a few eurozone countries, they have become a perceived problem for the area as a whole.[11] Nevertheless, the European currency has remained stable.[12] As of mid-November 2011 it was trading even slightly higher against the Euro bloc's major trading partners than at the beginning of the crisis.[13][14] The three most affected...
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...IMF Intervention and Relevance Abstract In todays modernised global financial markets technological advancements have transformed the way investors, financial institutions, governments and central banks operate. This has brought about a crisis of confidence in the ability of any one body to provide high quality surveillance, supervision and crisis management. Countries are unwilling to borrow from the IMF due to the intrusive economic reform policy conditionalities. Cocktail mixes of tax increases, spending cuts and privatisation of public sector assets have proven difficult for local governments to serve. The funds inability to keep pace with an expanding global economy suggest redefining itself with a more modest role that is fitting for such an international monetary system may be the best approach, As opposed to expanding the funds activities. Table of contents 1. Introduction page 1 2. Objectives page 1 3. Rationale page 1 4. Literature review page 2 4.1 The Mandate page 2 4.2 Consequences of IMF Programme Implementation page 2 4.3 IMF Relevance page 6 5. Conclusion page 9 6. Reference 1. Introduction This...
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...The 2008 financial crisis was a massive economic and financial downturn that later became a full on recession. This crisis lead to a near halt in trading and plummeted the GDP of almost all European countries. But how did the booming European economy suffer such terrible loss? While the crisis began in the United States a nationwide recession, especially one in a country thought to be economically sound, can quickly cause panic across the globe, leading to a distrust of banks. This can be absolutely detrimental as the system of banking relies wholeheartedly on trust as money is truly just a piece of paper with a trusted value. Panic can cause the public to rapidly pull their funds from banks and this panic and draining of funds can quickly...
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...Background: As the consequence of the 2008 U.S. banking crisis, Europe was hit by one of the worst debt crisis. Starting from Greece in autumn 2009, the crisis spread to other European countries, especially Spain, Italy, Ireland and Portugal and forced European policy makers to take many actions to limit its consequences (BOG, 2014, p.42). While others European economies such as Spain, Portugal avoided the severe crisis by following advisory strategy like austerity, reducing public spending…, Greece situation did not improved. To help Greece improve its situation, the IMF and Eurozone governments sealed a deal for two bailouts in 2010 and 2012, totalling €240 billion. On July 5, 2015 the majority of Greek citizens voted to reject the Europe’s plan to bail out the country’s economy, which caused the fear about the potential exit from the European Union, Greece’s future and world economy as well. Despite that fact, Eurozone leaders still reached an agreement on a third bailout programme to save Greece from bankruptcy on July 13. Although Greece overcame the severe situation, there is no indicator that the crisis will stop. This essay will discuss Greek situation involving 3 main issues, which are mistakes leading to crisis, financial regulation and the role of banks, potential financial contagion and moral hazard. Discussion: 1. Mistakes leading to crisis: One of mistakes leading to crisis was supposed to involve economic statistical data fraud. According to a comprehensive...
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...How fiscal policy adversely affected the European 2012 economic crisis By I chose this topic, because it intrigued me that another nation could encounter the same issues as the United States. The information contained throughout, will encompass the developments in the Euro area, the Euro’s three crises and Economic recovery. The intent is to educate you on the reason for the crises in Europe and how it can be avoided in the future. First let’s take a look at the reason for the financial crises in Europe. According to one of my sources, “The financial crisis that erupted in 2007 originated in massive bank losses on US mortgage loans. It spread rapidly to the Euro Area and other parts of the world, and led to the worst global recession since the Great Depression” (European Economy 3). The result of these events caused a increase in government purchases and transfers of households and tax cuts. I remember that a number of banks applied for help and were bailed out by the government, to include some major car manufactures as well. According to (European Economy 3) Bank losses explain about a quarter of the fall in EA GDP and consumption in 2007-09, and more than three-quarters of the fall in private nonresidential investment. It also implies results suggest that government support for banks noticeably dampened the fall in EA GDP, consumption and investment during the crisis. In the short run, the rise in government consumption would raise...
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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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...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 sector...
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...Introduction In Ireland during the 1990s the labour market started to grow exponentially and between the late 1980s and 2002 total employment in Ireland grew by more than 65%, the majority of which was in non-agriculture employment which accounted for more than 78% of the total employment. During these times the unemployment rate was below 4%, there was little or no long term unemployment, which was more in line with the EU average. The issues surrounding mass emigration and the decline of the population had reversed and a surge in immigration and a rise in the population; one of the fastest growing populations in the EU. This was a time of boom for Ireland, caused mainly by the buoyancy of the global economy and the expansion of the US economy. This was prevalent with the amount of foreign direct investment that was coming from the US. A major period of economic expansion caused an increase in the construction industry. At the start of 2008, the construction industry accounted for 25% of Irish GDP and 20% of Irish jobs. At this time, the Irish government was in a false budgetary position where it ran significant exchequer surpluses. As a result, the then Fianna Fail government, which was in power at the time began a process of cutting taxes, increasing tax incentives for developers to build homes, increased the size of the public sector including increasing the public sector wage through a benchmarking processes that was deeply flawed and even encouraged people to save...
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...crunch implications meaning “The public sector has provided massive liquidity support, injected capital and improved deposit insurance. Looking further ahead, wide-ranging reforms are under way aimed at increasing market and institutional resilience. It is an open question how wide the financial safety net will be cast. The future financial sector can be expected to be smaller and operate with higher capital and liquidity buffers than before the crisis.” This quote by M.Gudmundsson, basically says that that credit will not be as easy got by consumers from the pre 2007 levels, with the governance of banks meaning finance will be harder to get thereby meaning that people who are credit risks will struggle to get credit and so therefore economic growth will be slow for a few years until consumer confidence and bank capitol rises again with the economy. The introduction of payday lenders, easy to obtain credit cards with high interests and poor credit acceptance and the fact that online banks are now challenging banks on both finance and banking respectively mean that the finance industry is changing. In our research we looked at the PESTEL, Porters' 5 forces and blue and red ocean frameworks and applied them to the finance industry. We found some common trends and threats, with all models linking up to show common trends and interlinking the 3 frameworks, examples of this were, In PESTEL the legal environment and it's effect on the finance industry provided similar points as in...
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