...As far as we know, there were more than five economic and financial crises during the recent 200 years. Society was suffering from such downturns, because each of them had its own characteristics and consequences which affected the whole economic world. In the next passages I would like to tell you about the history of financial crises and about the solutions made by 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...
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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...
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...OF CONTENTS………………………………………………………….….4 1.INTRODUCTION ………………………………………………….………………5 2. OVERVIEW………………………………………………………….…………….9 3. RECESSION IN EUROPE 2008-2009…………………………………………..11 3.1. Recession in Greece………………………………………...…………...…..13 3.2. Recession in Germany……………………………………...…………...…..17 4. EU FISCAL POLICY………………………………………………………....….20 5. POLICY TOOLS………………………………………………………………….23 6. FISCAL POLICY IMPLICATIONS …………………………………………….25 6.1 Greece ………………………………………………………………………..25 6.1.1 Pre Crisis Economic Condition …………………………………..…….25 6.2.2 Recession 2008-2009 ………………………………………….……….26 6.1.3 Addressing the Recession: The post Crisis Period……………………27 6.2 Germany…..………………………………………………………………….28 6.2.1 Post Crises Economy and Recession 2008-09…………………..……28 6.2.2 Post Crises Germany ……………………………………..…………….29 6.2.3. Suggestions ………………………………………………….…………..30 7....
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...Thought (ECO 105) Robert Ellmann Financial Crises Irina Sterpu __________________________________________________________________________________ OUTLINE Introduction into the topic and its origins The Great Depression 1929-1939 German Hyperinflation 1918-1923 The Great Recession 2008 1973 Oil Crisis European Sovereign Debt Crisis 2009, onward Ruble Crisis 1998 Black Monday 1987 Conclusion References Financial crises – definitions and origin The majority of economists and monetarists define financial crises as a manifestation form of banking crises, with an impact on financial 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...
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...and French President Nicolas Sarkozy appear to hope their recent Summit will avoid further increasing Euro rescue fund, the European Financial Stability Facility (EFSF), or issuing joint Eurobonds. Both measures are extremely unpopular in Germany, which sees itself as the financier of spendthrift southern Euro zone member countries. Germans are only willing to pay with “their” money in “return” for strict austerity measures. And, as Merkel has said, Eurobonds would only be considered as last means. The German Chancellor seems to believe that the Euro zone is not yet at the point where last resort measures need to be considered seriously. Unfortunately, Mrs Merkel may be wrong. Are we there yet? There are a number of compelling reasons to back this. With Italy and Spain (and eventually France and Belgium) in peril, even a tripling or a quadrupling of the ESFS fund would not be sufficient. And by providing such funds the debt crisis would surely arrive in Germany, too. So far, imposed austerity measures have induced recessions in the debtor countries, Euro zone economic growth is flat and even in Germany zero growth was reported in the last quarter. All this makes it more difficult to grow out of the debts. Financial markets and especially interbank markets are increasingly showing signs of resembling the conditions preceding the global financial crisis conditions – strongly suggesting that another banking crisis is just around the corner. But this time it will hit the...
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...countries signing an agreement. Its membership gradually increased during the 1950s and 1960s with most of the African countries joining the International Monetary Fund after gaining independence. Currently, the International Monetary Fund has evolved to become an organization which consists of 188 member countries working with common objectives of promoting worldwide monetary cooperation, providing financial strength to countries, promoting international trade between countries, reducing unemployment and poverty in the world. The new countries who became members of the International Monetary Fund between the years 1945 and 1971 gave their consent to keep their respective exchange rates fixed at rates that can only be changed to revise a significant inequality in the balance of payments, and could only be done so with the consent of the International Monetary Fund. This system was referred to as the par value system or the Bretton Woods system. However in the year 1971 this system was suspended when President Richard Nixon of the United States decided to stop conversions of the US dollar into gold. Even thought efforts were made to restart the system, it did not succeed and in the year 1973 the currencies of the main countries were allowed to float against the other currencies. As a result, with the failure of...
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...From more strongly integrated financial markets, to the potential for a unified European identity, the Euro certainly brings many advantages to Europe. However, the political and economic instability that both caused and was caused by the Euro crisis threatens the further perpetuation of this currency. The onset of the Euro crisis came about when the Greek government admitted to a budget deficit much larger than they had previously divulged. Interest rates skyrocketed and, despite efforts to reduce spending, Greece ultimately fell bankrupt. Concerns over the decline of a state that represents only 2.5% of the EU’s GDP could have been redressed, had it not been for inflexible provisions of the Treaty on European Union. The “no-bailout clause” did not permit the EU or any national governments to undertake the debts of another state, a rational but perhaps detrimental provision in 2010. Moreover, one may argue that the Eurozone was in jeopardy from the start when more than half of its members did not meet the debt limits. The Stability and Growth Pact, an instrument created to monitor these debt limits, was quickly ignored. Even Germany and France, the EU’s most influential members, regularly exceeded deficit allowances and thus smaller states like Greece were able to build debt unchecked (see Appendix A). If the EU had taken more decisive actions in early 2010 to remit significant loans to impose austerity measures on Greece, the world’s confidence may have quickly revived....
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...Name of the University Master Thesis Banking system reforms after the subprime crises Study case: Spain Author: | Supervisor: | | | Department of …………………………… January 2014 Abstract How did the Subprime Crisis, a small problem of U.S. financial markets, affect the entire global banking system? The aim of this paper is to analyze the effect of the subprime crisis on the banking sector in Europe, with a close attention on the case of Spain. Spain is currently facing the worst crisis ever experienced in its financial history, so it would be interesting to analyze what is the real situation of the banking sector and what will be the reforms that could lead to a consolidation of the financial systems. The strengths and weaknesses of the financial sector will be analyzed in order to see the changes needed to maintain its competitive position. The first part of the paper will briefly explain the subprime crisis, origins and impact on the financial world as new form of contagion. In the second chapter the consequences of the subprime crisis in the Spanish banking sector will be described. The last chapter of the thesis will present an analysis of the reforms made, using legal intervention. It will be concluded with a general point of view regarding the present situation of the Spanish banking system, the potential results of the current measures and the perspectives of new reforms. Contents 1 | Introduction | | 2 | Introducing the Subprime Crisis...
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...Central Banking in the Global Economic and Financial Crisis" 1. Introduction It is fair to say that central banks around the world have learned the lessons from previous crises and they attempted to change financial regulations to keep pace with the changing global financial system. The policy response triggered by the recent financial crisis has been rapid and it appears that the global policy response has helped to mitigate the effects of the financial crisis. European Central Bank response to the latest crisis was an example of swift and effective reaction. It combined a mix of standard and non-standard monetary actions. 2. European Central Bank (ECB) – history and mission The ECB is the central bank for Europe's single currency (the euro) and its main task is to maintain the euro's purchasing power and thus price stability in the euro area. The ECB was created in 1998 to serve as the central bank representing the interests of the countries belonging to the European Union. In less than a decade, the ECB, headquarter in Frankfurt, Germany, has emerged as one of the world’s most important financial institutions. The Treaty of Nice (1967) established a three-stage plan to create a single currency and monetary policy for the euro area by creating the European System of Central Banks (ESCB). The ESCB consists of the ECB as well as the national central banks for each of the member nations. The ECB is successor of the European Monetary Institute (EMI). The EMI was established...
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...real-world economics review, issue no. 58 The Eurozone crisis: Looking through the financial fog with Keynesian glasses Jorge Buzaglo [Sweden] Copyright: Jorge Buzaglo, 2011 You may post comments on this paper at http://rwer.wordpress.com/2011/12/12/rwer-issue-58-jorge-buzaglo/ It is easy to become confused about what is really happening to the European economies. The media are totally focused on financial surface phenomena. Attention is given only to the developments in the financial markets, in particular the growing difficulties of the so called PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) for keeping on financing their government spending by increasing debt — as reflected by increasing spreads in interest rates (e.g. compared with German rates). However, looking just below the surface one discovers that the Eurozone is suffering from a kind of disequilibrium that is similar to the type of imbalance existing in the trade relationship between the US and China. The origin of the US-China imbalance can be found in the huge expansion of credit and debt in the US (a Minsky-type process), which financed a large consumption and import boom — including a boom in imports from China in particular. The vast import boom caused in turn a large US trade deficit and a growing external debt. External debts cannot grow indefinitely; at some point markets judge them unsustainable. With a de facto fixed exchange rate between the dollar and the yuan, the only way available...
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...The International Monetary Fund (IMF) was originally established in order to encourage international co-operation to cope with recession and protectionism on a world scale and to discourage individual countries from pursuing policies that would beggar their neighbors and eventually themselves. The desire to improve on the international chaos of the 1930s led to the Bretton Woods Conference in 1944, and an attempt to devise a financial system which would provide a more permanent and acceptable framework for international transactions. It was intended that the emerging Bretton Woods system would generate benefits for international trade in the form of stable (though not necessarily fixed) exchange rates, while at the same time, avoiding the deflationary rigidities of the gold standard mechanism. The system was designed to ensure a world of full employment and economic growth. This paper will examine a few of the negative and positive aspects the IMF has had since its inception, and how it has evolved over time to answer the question, is the IMF a sinner or saint? If the general purpose of the IMF at its inception was to oversee the operation of the infant Bretton Woods system, its more specific purposes were spelled out in Article 1 of its Articles of Agreement as follows: | (i) To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems. | | (ii) To facilitate...
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...------------------------------------------------- Balance of payments From Wikipedia, the free encyclopedia Balance of payments (BoP) accounts are an accounting record of all monetary transactions between a country and the rest of the world.[1] These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The BOP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts ofloans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items. When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways – such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries. While the overall BOP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account, the capital account excluding the central bank's reserve account, or the sum of the two...
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...International Financial Markets: What Can History Teach Us?* Michael D. Bordo Rutgers University and NBER Paper prepared for the conference “International Financial Markets: The Challenge of Globalization.” March 31, 2000. Texas A and M University, College Station Texas. * For valuable research assistance, I thank Antu Murshid. 1. Introduction Globalization has become the buzz word of the new millennium. It is viewed as the cause of many of the world’s problems as well as a panacea. The debate over globalization is manifest both in public demonstrations against the WTO in Seattle in the Fall of 1999 and the IMF and World Bank earlier. It also has led to a spate of scholarly and not so scholarly books on the subject.1 Until three years ago the consensus view among economists on the issue of the international integration of financial markets was very positive. The benefits of open capital markets stressed include: optimal international resource allocation; intertemporal optimization; international portfolio diversification and discipline on policy makers.2. However, the recent spate of crises in Latin America and Asia has led some to argue that the costs of complete liberalization of financial markets for emerging countries may outweigh the benefits.3 The paper focuses on the globalization of financial markets from the historical perspective of the past 120 years. In Section 2, I summarize the empirical evidence on the international integration of financial markets from 1880...
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...and financial crisis that engulfed the world starting in 1929. Is globalization again at risk as a result of our current global economic and financial crisis? What similarities between the two episodes suggest that globalization is again at risk? What differences suggest that it is not? What is your evaluation of the risks, at the moment, on balance? In Addition, READ the attached article: G20 Process- from the economist. First of all it is important to understand the socio-economic, politic and geographic situation that both 1929 and 2008 crises were based. The great depression which originated in 1929 in US and spread world over by 1930’s was characterized by barren business and huge unemployment. The main cause of this depression which took all the nations towards financial crises was crashing of the stock markets in 1929. Thousands of investors lost their money in stock markets, leading to a longest recession which comprised huge layoffs, unemployment , wiping out of business activities and which left millions of people depending on government or charity for food. Both episodes were preceded by rapid credit expansion and financial innovation that led to high leverage. However, while the 1920s credit boom was largely US-specific, the 2004-07 boom was global. With much higher levels of real and financial integration than during the interwar period, a US financial shock now has a larger and more immediate impact on financial systems elsewhere. These greater financial vulnerabilities...
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...How has the global economic environment changed in the last year? Following two years of weak and uneven recovery from the global financial crisis, the world economy is teetering on the brink of another major downturn. Output growth has already slowed considerably during 2011, especially in the developed countries. The baseline forecast foresees continued a pale growth during 2012 and 2013. Such growth is far from sufficient to deal with the continued jobs crises in most developed economies and will drag down income growth in developing countries. In this paper I will be speaking about the global economy, but first, I will elaborate and concentrate on the strongest economy in the world, the US. In the past year, the most important issue in the United States was employment. All of this year we have seen the employment rate change from 8.1% 8.3% which is a very narrow range, but still means that 12.8 million people are out of jobs, which is extremely bad, but on the other hand, if you wanted to compare it to the rate in 2008, where the economy was falling apart, things seem optimistic. It’s not the government isn’t creating jobs, because it is. The problem is that it’s not creating enough jobs to soak up all the people who were laid off. On average, the country has been adding 150,000 each month, which is good, but not fast enough for people who have been laid of for a while to return to the job market. Another problem is the housing market. In comparison...
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