What caused the global recession of 08? And thus caused the European debt crisis
Basic Economics - The Bank Run • “It’s a Wonderful Life”
America Sneezes and the World gets Pneumonia! • The Housing bubble bursts 2006
The bubble burst • By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or in foreclosure. By September 2009, this had risen to 14.4%. Between August 2007 and October 2008, 936,439 USA residences completed foreclosure.
The American Recession of 2008 • Adjustable rate mortgages/Subprime mortgages • Lehman Brothers & mortgage securities (MBS) • Fannie Mae • Moodys and other bond rating agencies • Property taxes
What Caused the Crisis? • American Housing Market • UK Housing Market • Profligacy in the PIIGS • Decades of Low Interest Rates • Inflation in Wages and Goods • Overleveraged Banks • Lack of competitiveness
European Exposure to US Housing Bonds Country Banks Losses • Britain Royal Bank of Scotland US $15.6 bn. HBOS US $9.5 bn. Barclays US $6.7 bn. • Switzerland UBS US $48.6 bn Credit Suisse US $13.7 bn. - • Germany BayernLB US $14.4 bn. IKB Deutsche Industriebank US $14.0 bn. Deutsche Bank US $12.7 bn • France BNP Paribas US $5.8 bn.
Debt in the Euro Zone (17 of 27states) • Can the Governments in Greece, Portugal, Ireland, Spain and most importantly Italy cover their $4.2 trillion in borrowing without wrecking European banks?
Greece as a Case Study The darkening clouds of civil disobedience and anarchy in Greece
European Exposure The end of EMU – “Europe’s Melancholy Union”
Which Path to Recovery?Austerity (Taxes, spending cuts) or Growth (Tax and regulation cuts)
US Response – Ambassador Smith (CU Grad) and Secretary of State Clinton The Fed v. The European Central Bank
What can they do? • The Greek gray economy/Greek culture • Euro zone writes off half of the Greek debt – EFSF • Do the Germans, French and Dutch have to continue to pay? • Austerity and taxes vs. Priming the pump • Growth – Competitiveness, bureaucracy, deregulation, labor & the welfare state (The German example) • The ageing population • Integrate or Disintegrate • Break up the Euro or even the EU (Nationalists – Anti-globalists) • More Sovereignty to Brussels