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Understanding the Global Crisis: Insights into Regional Impacts and Policy Responses

This analysis delves into the roots of the global financial crisis, emphasizing its financial, economic, and employment dimensions. It examines how the crisis unfolded, its worldwide effects, and the transmission mechanisms affecting regional economies, particularly in Eastern Europe. The study further explores policy responses needed to mitigate negative impacts, focusing on bank stability, fiscal measures, and the significance of foreign direct investment (FDI). It highlights the importance of coordinated regional strategies to address challenges and foster recovery in an interconnected global landscape.

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Understanding the Global Crisis: Insights into Regional Impacts and Policy Responses

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  1. Global Crisisin an Integrated Region Context George P. Zanias Athens University of Economics and Business

  2. Outline • Global crisis: the roots • Financial, economic and employment crisis • The Global impact • The transmission to the region • The regional impact • The policy responses

  3. Global Crisis: the Roots • Financial System: a mean to an end. But... • Greedy Bankers • Complacent regulators • Global economic imbalances • Hyper-consumption and twin deficits in the US • Large savings in BRIC, Emirates, Japan • Huge current account deficits in emerging markets

  4. Global Crisis: the Roots …and the ignition: US subprime market …following up from: food and fuel crisis

  5. Implications for the Real Economy Bank Liquidity Access to credit Cost of credit Uncertainty Consumption Investment Savings Employment Unemployment Savings Demand Output

  6. Global Impact: Growth Projections

  7. Global Impact: Industrial Production and Trade Projections

  8. The transmission to the Region • Through Uncertainty • Through trade, the banking system, FDI • Open door trade policies and contraction of export markets • Reliance on foreign banks who reduced/cut lending to local subsidiaries • Reduced volumes of FDI

  9. Western Banks in Eastern Europe

  10. BSEC: Current Account Deficits(% GDP)

  11. Regional Impact: Financial markets

  12. Regional Impact: EU and Emerging Economies (EC + EBRD forecasts)

  13. Regional (BSEC) Growth Forecasts (EBRD, Greece: EC)

  14. Policy Responses • Cleaning banks (toxic assets, liquidity) • Monetary policy (lower interest rates) • Fiscal policy (demand stimulus packages) • Employment and SME policies • Safety net (social policy, precautionary savings)

  15. But: One size does NOT fit all(The regional context) • Heavy dependence on foreign banks • Interest rate support for currencies • Heavy dependence on FDI • New protectionism (credit and trade) • Lack of means for stimulus packages and larger informal sector in crisis situation

  16. …and some advantages • Possible benefits from foreign stimulus packages • Higher activity by IFIs • Access to cheaper funds • Investment projects to boost demand • SME packages

  17. Regional level response • Avoid protectionist measures • Coordinate possible financial and fiscal policies • BSTD Bank initiatives

  18. Thank you

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