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The European Debt Crisis

The European Debt Crisis

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The European Debt Crisis

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Presentation Transcript

  1. The European Debt Crisis

  2. What caused the global recession of 08? And thus caused the European debt crisis

  3. Basic Economics - The Bank Run • “It’s a Wonderful Life”

  4. America Sneezes and the World gets Pneumonia! • The Housing bubble bursts 2006

  5. 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.

  6. 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

  7. 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

  8. 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.

  9. Debt in the Euro Zone (17 of 27states)

  10. 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?

  11. Greece as a Case Study The darkening clouds of civil disobedience and anarchy in Greece

  12. European Exposure The end of EMU – “Europe’s Melancholy Union”

  13. Will Greece bring down the Euro?

  14. Which Path to Recovery?Austerity (Taxes, spending cuts) or Growth (Tax and regulation cuts)

  15. US Response – Ambassador Smith (CU Grad) and Secretary of State Clinton The Fed v. The European Central Bank

  16. The US Solution vs. the European one

  17. 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