eu crisis presentation - final version
TRANSCRIPT
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Financial Crisis and the European Union
MScFI – 2011/2012PP Finance
November, 2011
• Adam Balogh• Guillermo Palacios• Lucas Pederzini• Peter Bali
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Agenda
MScFI – 2011/2012PP Finance
Main Financial Indexes
How the Crisis Started
Main Impacts in European Union
European Union Overview
Recovery Plan
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Capital Mobility
MScFI – 2011/2012PP Finance
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Capital Mobility
MScFI – 2011/2012PP Finance
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Unemployment
MScFI – 2011/2012PP Finance
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Youth Unemployment
MScFI – 2011/2012PP Finance
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Unemployment in the Great Depression
MScFI – 2011/2012PP Finance
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How the crisis started
Uncertainty among banks;
Policy makers still described the crisis primarily as a liquidity problem;
European economy immune to the financial turbulence.
This sentiment dramatically changed in September 2008
MScFI – 2011/2012PP Finance
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Result
Panic in stock markets and the trade credit became scare:
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Bank lending to private economy in the euro area 2000-09
MScFI – 2011/2012PP Finance
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Negative growth:
Growth in % 2008 2009 2010
GDP 0,9 - 4,0 - 0,1
Private C 0,9 - 1,5 - 0,4
Public C 0,9 - 1,5 - 0,4
Total investments 0,1 - 10,5 - 2,9
Unemployment 7,0 9,4 10,9
MScFI – 2011/2012PP Finance
Result
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Impact on Budgetary Positions
Rapid growth of fiscal costs:
• Fiscal Deficit;• Public Finances;• Sovereign Risk Spreads.
MScFI – 2011/2012PP Finance
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Fiscal Deficit
Housing Boom; European Commission analysis:• Direct Channels;• Indirect Channels.
MScFI – 2011/2012PP Finance
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Public Debt
Debt financed fiscal deficits;
Capital injections in distressed banks.
MScFI – 2011/2012PP Finance
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Fiscal Stress and Sovereign Risk Spreads
Widening sovereign risk spreads;
Downgrading in credit rating;
Fiscal Space - risk re-pricing.
MScFI – 2011/2012PP Finance
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Recovery Plan
Short Term Actions:
• European Financial Stability Facility (EFSF);• Special Purpose Vehicle (SPV) created in order to sell bonds to raise
money for granting loans to the euro zone nations in need.
• European Financial Stabilization Mechanism (EFSM);• Emergency funding program created in order to raise founds on the financial
markets, guaranteed by the European Commission, using the budget of the European Union as collateral.
• ECB interventions.• Open market operations buying Government's and private debts;• Two 3-month and one 6-month full allotment of Long Term Refinancing
Operations;• Reactivation of the dollar swap lines with Federal Reserve support.
MScFI – 2011/2012PP Finance
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Recovery Plan
MScFI – 2011/2012PP Finance
On-going Happenings:
Political changes:
• Greece and Italy - beginning of a new Management era.
• Results are expected before December/2012.
Kick-out poor and negligent Countries:
• Impacts on Political issues and diplomacy.
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Recovery Plan
Proposed long-term solutions:
• Common fiscal policy (European Treasury);
• European Stability Mechanism;
• European Monetary Fund (instead of EFSF);
• Address slow economic growth;
• Euro breakup – two currencies speculation.
MScFI – 2011/2012PP Finance
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Future
MScFI – 2011/2012PP Finance
?What’s the future of European Union?